TARGET2 IS A PAYMENT SYSTEM OF UNPAID BILLS IN THE EUROZONE

In Spain we know it well. Every time there's a switch of political parties in any Administration (Municipal, Regional or Central State) and the opposition party takes over the helm, the news about unpaid bills emerge. It's commonly known as "bills hidden in the drawer". So, a new Administration starts its mandate with the coffers in negative territory. This causes many troubles to the private contractors working for the Administrations because their bills are due during months or years.

But the authorities in the Eurozone have come up with a brilliant idea. Let's use the Central Banks to advance the payments to the creditors using the money printing press but, as the new bank notes in circulation would show up in the statistics provoking depreciation of the currency and thus, inflation, it's better to conceal it issuing Book Money, which is not legal tender and therefore, it cannot show up in any statistic.

In my previous article a talked widely about this new term "Book Money": Central Banks' postings of money, created out of thin air, in the banks' account books. What is the perfect example of a Cryptocurrency, not Bitcoin and others which are simple tokens, because it's issued by an official institution and thus, backed up by an economy, although it must be declared legal tender to meet the definition of currency. As of now it's a quasi-cryptocurrency.

The Payment System created in the Eurozone is called TARGET2 that only shows transactions between the Central Banks but, because the transactions settled are never paid down, it shows the Claims and Liabilities, that is, Receivables and Payables between them.

That's why this Payment System should be renamed Unpaid Bills Payment System.

Note that the ECB is a big lie. All the data released is from the Eurosystem, comprised for the consolidated balance-sheets from the Central Banks of each member State plus the ECB's. So the ECB is just another player. For instance, in the disaggregated data of the Eurosystem we see it has just €433 billion worth of Assets, of which €246 billion are securities purchased, but it also shows it hasn't paid for it as it has €248 billion Liabilities (Payables) in the Target2 data. Another delinquent member of the Eurosystem.

TARGET2 DATA: CLAIMS/LIABILITIES FOR EACH CENTRAL BANK

These unpaid bills between the Central Banks are hidden in the drawers because when the Eurosystem reports its balance sheet (mistakenly called ECB's balance sheet), the Target2 data doesn't appear because

results if it were a single entity are eliminated

That is, the Eurosystem's report assumes that it is a single entity and not the aggregation of different Central Banks and thus, the Receivables and Payables among the Central Banks aren't shown. In other words, nobody owes money to itself.

Who can use Target2?

More than 1,700 banks use TARGET2 to initiate transactions in euro, either on their own behalf or on behalf of their customers. But, taking into account the average value of a TARGET2 transaction was €5 million in 2016, it's used by big players.

Example of how Target2 data works.

The Bank of Italy purchases an Italian bond to PIMCO, the largest bond investor in the world, through the Central Bank of Luxembourg. It turns out that the Bank of Italy doesn't pay for it (the Bank of Italy has a Liability in Target2 data) but the Central Bank of Luxembourg advances the money to PIMCO depositing Book Money in its account book at the Central Bank (the Central Bank of Luxembourg has a Claim with the Bank of Italy). If PIMCO doesn't withdraw the funds from its account, the Central Bank can reinvest it purchasing bonds like any money deposited in a bank by a customer.

Side effects

• Not only it's a scheme to create money out of thin air unaccounted for in the statistics but it could be a bailout scheme, because the Central Banks are purchasing bonds to private investors so that they can evade the credit risk. E.g. The Bank of Italy and the Bank of Spain could be purchasing Italian/Spanish bonds to Deutsche Bank and other German Banks via the Bundesbank as a way to offload their risk to peripheral Europe, accumulated during a reckless investments era. That's why the enormous Claims/Liabilities in the Target2 data by the 3 countries.
• Because the bills are never paid down, two Central Banks can agree to issue fake bills as a way to deposit Book Money in their flagship bank and propel its battered economy.
• Someone that plans to pump trillions of Book Money/euros in its economy needs a massive immigration. Immigrants don't bring wealth but they increase the monetary velocity. Angela Merkel just had to make a phone call to the Southern States Army and Russia to destroy Syria, and later turn herself into the champion of refugee welcoming.

TIPS SYSTEM

The European politicians have found the golden goose with this system of unpaid bills disguised as transactions between Central Banks, so why don't extend it throughout the economy?

TIP system is available as of November 2017 and it's meant for the small people using the same excuse: it's a real-time payment system, but it's real time because the Central Banks advance the payments of the debtors to the creditors depositing Book Money in their accounts.

Now in every reckless project, the Mayor of any Municipality can arrange a contract with a local private contractor (his cousin) and pay through TIPS. This way the enterprise receives the cash in real-time in its account but, because the transaction is made via the Central Banks, the Municipality doesn't pay (the bills are kept hidden in the drawer as before) and the one that assumes the claim of the debenture is the Central Bank, which opens the door to bail out all the Administrations once the Central Banks have accumulated huge Claims with the Administrations that hold the Liabilities.

As you see, the Eurozone is playing the game of the 3 cups and the ball, where the ball is the obligation of payment and the cups are the banks, Central Banks, investors, enterprises,.... so no one really knows who on earth will end up holding the obligation of payment in every transaction.

SEPA SYSTEM

It's the original and widespread Payment System among all the countries in the Eurozone to settle transactions, fund transfers, credit card payments, debtor payments (when one in Spain pays the telephone bill with an account in Austria, for instance), etc.

All operations between 2 parties are settled one day later.

This is the only system that must prevail and all other Payment Systems are just obscure schemes of:

-Printing money

-Bail out investors

-Central Banks Implicit Guarantees:

• TARGET2: bond investors assume that they will be bailed out if things go sour. It prompts reckless investments in Municipal Debt from communist countries like Spain, etc.
• TIPS: the Municipalities engage in a massive spending spree knowing the Central Bank will advance the payments to the private contractors. So, more mega-auditoriums, museums that look like cathedrals, mega-swimming pools and paddle-sport venues, etc. will be built in every town or city (the cause of Spain's economic crisis in 2011)

Make not mistake. This is Securities Fraud. You can monetize an unpaid bill (Discount Bill) selling it for early payment to a bank or credit institution, but it must be at less than face value after the bank deducts fees and applicable interest charges. The bank or credit institution then collects full value on the draft or bill of exchange when payment comes due. With Target2 and TIPS, bills are "discounted" (early payment) but the creditor gets face value and it isn't specified the maturity date. So there's no "discount".

Everything is interconnected

In the run-up to Germany 1931 currency crisis, the politicians hired civilians in order to report dissidents and economists that were opposed to the authoritarian regime that embarked in reckless policies (printing money, unbalanced budgets, banks funding the Municipalities,etc). The same occurred after WWII in East Germany, where civilians acted as informants for the political Police called Stasi to report dissidents.

History repeats itself and now economists like me are psychologically harassed by the Police on a daily basis in every city around the world I visit utilizing civilians.

Who knew! It turns out that Angela Merkel worked as informant for the Stasi.

Communism (Police and Army turn into drug dealers, human traffickers, fake content providers for the TV, psychologically harassment of citizens, besides fraudulent statistics, fraudulent enterprises' accounts, fraudulent schemes like Target2 and TIPS, fraudulent auto gas-emission tests, fake terrorist menace to profit on the stock market and oversize the Police/Military, etc) represents the unfinished business since the WWII.

It's the enemy of the people.

Another generation of politicians full of shit.

It's time for action.

UPDATE ON SEPTEMBER 11th
After reading a Bundesbank's document and an ECB's web page, the mechanism about TIPS Payment System I outlined is confirmed: the Municipalities don't pay because they have a credit line in their TIPS account and the Central Bank's account can have negative balance, so they assume the Claim on the obligation of payment.
More detail in this Twitter thread.