€47 Billion Down, Several Hundred Billion More To Go: Europe's Monetization Is Just Warming Up

Tyler Durden's picture

The world's undisputed monetization grossmaster (Electronic Liability Outsourcing rating of around 1.8 trillion), representing Wall Street, the Federal Reserve, may be about to see some stiff championship title competition from the little Central Bank that could - the ECB, in a blitz (and very much blind) game of quantitative easing. In a speech, that not too surprisingly missed all the main wires earlier, Fitch head of sovereign ratings, Brian Coulton, warned a banking conference, in discussing the ECB's monetization activity to-date, that "there has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion." Which means that Bob Pisani will report on many "extremely successful" Spanish bond auctions over the next year or so, as the ECB buys up every single primary issuance not just out of Madrid, but every single country in Europe, where the non-subsidized (i.e. private) capital markets are now officially dead. Courtesy of Greece, and the fatal decision to bail it out, the Eurozone will one day be described in textbooks as the greatest ponzi scheme ever created (or, at worst, joint in first place by the Fed).

And since the Fed will never stand idly by and watch as Europe's manufacturing sector actually has someone to export to, courtesy of the 0.97 EURUSD that BNP wrote about earlier, he will rerereraise his quintuple all in, and announce the $5 trillion or so in QE that Bob Janjuah discussed previously.

The Telegraph adds some additional detail in this pursuit to the teleological Keynesian bottom:

The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU's `shock and awe' package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn).

It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer.

ECB council member Jose Manuel Gonzalez-Paramo said it was "not entirely correct" to assume that the ECB was the sole buyer of the debt. "We will continue buying bonds until the situation has stabilized," he said.

The Bundesbank is reportedly irked that French banks have led the rush to the exits while German banks have stuck by a gentleman's agreement to keep their Greek assets. The ECB's council insists that it has "sterilized" all purchases, offering no net stimulus. In effect, the ECB has done little to offset severe fiscal tightening by some eurozone states, and as the M3 money supply contracts.

The gross inexperience of the ECB is even being lamented by European financial analysts:

Silvio Peruzzo from RBS said the auction does little to help Spanish banks and firms that have been frozen out the debt markets and face a funding crunch.

"The ECB needs to act before contagion becomes endemic. Spain's banking system in at the heart of an ice-storm and there is a risk of 'sudden stop' if they can't roll over debt. We expect intervention, probably in covered bonds," he said.

David Owen from Jefferies Fixed Income said the eurozone may start contracting again in the second half of the year. He said the "core problem" haunting the European debt markets is that investors have little faith in the EU strategy of forcing states to carry out draconian cuts in the middle of a recession.

Mr Owen said these countries need sustained growth to claw their way out of debt-deflation traps, and that will require fully-fledged quantitiatve easing by the ECB, and drastic currency depreciation. "If the euro falls to parity or down to 80 cents against the dollar, we would start to see a solution," he said.

And for all those counting down the days to the Mayan TEOTWAWKI, the catalytic event may in fact emerge out of the old continent:

Fitch said European banks must refinance nearly €2 trillion of long-term debt
by the end of 2012 in an unfriendly market. "There's an awful lot of
debt coming due in 2011 and 2012, and that is becoming a concern
," said
Bridget Gandy, the agency's banking expert.

At this point the course before the ECB is certain: sooner or later the bank will have to go all in on monetization, and pray that its intervention is more successful than that of the SNB in the CHF market. Which only leaves the Bernanke wildcard - the Princetonian is still biding his time, knowing that the ECB will be forced to take the next step, yet comforted that the world still thinks that the dollar is a reserve currency. Alas, he may be a little confused here, as confirmed by his recent remarks highlighting his "misunderstanding" of the acrobatics in the price of gold. Should more and more investors shift their assets to gold before the time of the next QE iteration announcement, at the end of the day, it may just end up being Europe that outwits the "smartest" nouveau-Ponziers in the room. Which really wouldn't be all that surprising: after all Europe has been learning from (failed) monetization and devaluation attempts going all the way back to the Romans, while the Fed has not even been around for a hundred years.

The endspiel in the blind blitz will be one to watch.

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hambone's picture


I'm heartsick about what the Fed and the ECB are doing.  I have a family with kids going into high school and not long after joining the work force.  Monetization is just money that will be paid back sooner than later at ever greater drags to the economy.  The amounts are stupendous and essentially indexed to inflation.  The amounts will become crippling just to roll over the principal let alone if interest rates ever take off.  All the T debt is so short term (avg 4.5yrs maturity) that it is essentially indexed to inflation as they must be rolled over so often that inflation is no remedy.  The new T's (on the massive $14 or $16 or $18T principal) interest rate will increase w/ the rate of the inflation.  Same for unfunded liabilities.  GDP can't come close to outgrowing this.  Play w/ the fucking #'s yourself - $13T in debt (at 2%, 4%, 6% interst rates) $14.5T in GDP, w/ $2.1T in tax revenue...if we get inflation all those 0% short term rates are gone.  Fed will need to give ever more massive amounts of free money to PD's to "incent" them to buy T's in an inflationary environment...hyperinflation acheived without resolving any debts or strucural issues.

I really am getting ready to pull the plug on playing the corporate game, selling the house, cashing out the 401k's, and head for the fuckin hills.  The supposed remedies aren't remedies but only more of the same leading to utter more spectacular collapse. 

I can't believe we're allowing this to be done in our name. 

I've really had it but have no idea how to stop it...but I'm ready to try.

Advoc8tr's picture

I hear you ... I think we have to accept that it is too late to stop it (mitigate maybe?) and do as you indicated. Run to the hills, get organised to survive in such an environment and prepare a plan for securing / organising a better system in the aftermath. I mean worst case scenario is it all falls in a heap and out of the ashes something even worse evolves. Best opportunity to have a positive effect on future for children / grandchildren etc... is to use the crisis to effect structural poitive change after the current system falls apart.

hambone's picture

I'm looking around and thinking if this is what the Germans of 1935 Nazi Germany were looking at (minus the whole holocaust...I'm not a O fan but I don't see anything like that in America's future).  What I mean is many Germans left because they could see the writing on the wall w/ the Nazi's coming to power...things were gonna get worse and dark days were ahead. Think of Jim Rogers and others that see the US future clearly now.  Trouble is I'm not a billionaire and not even a measly millionaire.  All the same, the time is coming fast to have a game plan for my family and get ready to put it in action.  Time seems like it isn't on our side much longer...the numbers are getting staggering and someday joe six pack may catch on that we're screwed. 

Anybody thinking of leaving?  Where are you going?  Staying?  What is the plan?

What_Me_Worry's picture

The nazi party coming to power was clearly a quick political shift in Germany, though.  Here, we have the same oligarchy that has tricked everyone into thinking it is two distinct separate parties.  The Repubs/Dems, in their current state, have been in power for quite a while now.  Although, one could argue it was a very slow, subtle shift.

I actually find it funny now.  The political power in the USA is trying to model itself around the government of the People's Party in China while at the same time the Chinese political power is trying to desperately model itself around American capitalism.  Soon, it will become hard to distinguish the two.  At least in China, they don't pretend to have free elections/free press.

In the end, all established governments vie for more power than the people have granted them.  Or is it the will of the people that demands they take on more power?  We may just be becoming a society of citizens that yearn to make no real decisions at all.  Except for, of course, who is our next American Idol.

Apostate's picture

Bah. The sheep are about to be thwacked with a gold brick.

The statists know by now that there's nothing left to loot. Their quality of life will collapse unless they step down.

Vampires need blood to survive, and there's none left to be sucked. 

Thoreau's picture

"Vampires need blood to survive, and there's none left to be sucked." Aka - STOP PAYING TAXES!

Currently Smoking Cannabis's picture

Belize is worth considering, depending on your needs/standards.

It's cheap, especially inland - outside of San Ignacio - and it's easier to enter than almost anywhere.  Permanent Resident status can be obtained in about 2 years.  You can grow just about anything there and fresh water is easy to come by (they trap rain).  Small businesses are also very easy to start as Belize is pro-business (not much red tape/regulation to get going).

The downside, for some, is that Belize is very underdeveloped and property crime is an issue.  Also, stay out of Belize City.

Costa Rica is also a possibility, but they require more net worth for residency and Spanish is the primary language.

Good luck.

Hedge Jobs's picture

By the time the sheeple realise what has been done to them and bring out their guillotines it will be the banksters, corrupt officials and all the rest of the shills that have run and profited from this giant ponzi that will be running for the hills.

"off with their heads"

Augustus's picture

And the whole thing is finally triggered by the ECB deciding that Greece is too big to fail.

If you have a little time, get the book The Crash of '79 by Paul Erdman.  It is a forecast of this ending written 40 years ago.  The trigger is a bit different but the Central Bank response is exactly the same.  They just buy their own bonds with the currency until the world is absolutely awash in cash.  People start buying Things and the bonfire consumes everything.

LeBalance's picture

Regardless of your personal circumstances (family, job, etc.) the first task is to realize the situation, which you have done.  The second is to realize that this wheel of history has spun many times before and it does not stop or change.

Then there are your options.

Mathematically they are relatively obvious.  Personally then are heartwrenching.  First, complete recognition of the nature of government and "The Land of the Free..."  This is some thing that even many well known bloggers have not been able to deal with (cough KD cough).  Then there is the question of taking one's power back.  As in no longer being served by the government, its police, its fire departments, etc, not just its banks, MIC, etc but its little people services, the one's we take for granted.

Then there is where to live. Not around dense pop centers that are going to go into massive emotional shock.  Possibly in the middle of the US.  Or elsewhere.

After analyzing the NAFTA map several years ago I surmised that the NUA highway (Rte 35 corridor, Dallas, OK City, Kansas City, etc.) is going to be an area that the PTB will continue to invest in.  And on that map, no east or west coastal areas were targeted for build-up.  That gave me an indication that those areas would be allowed to "go fallow" >> "possible military quarantine / Gaza model / whatever.  Looking back in history and assessing the FEMA detention camp capability, it seems reasonable that dissidents and entire populations could be moved rapidly.  These capabilities already exist.

Of course, many folks would say, "But but...this is America...its the best."  Best now ...???  Best in 3 years....?  You are a consumer of service.  You retain the right to move if the place you are in is no longer serving you.  What you do is reach for the US property sticker and peel it off.  But I am an American! some cry.  Not a problem, you are an American.  (Neo, Look around you. What do you see? Firefighters, lawyers, dentists, the very minds of the people we are trying to free. But they are a part of that system and until we free those minds they are part of that system. They will fight to remain part of it.) (cough KD cough).

Many blessings.  Each road is just experience.  No choice is incorrect, it is just a choice, but it is a choice.  Attitude is also important, a positive attitude being less hard on the body.

wintermute's picture

Hambone, I am with you on what you say - but this is bigger than any individual. Load up on gold and farmland if you can. 401ks are toast now.

There is a great chart published by Jesse today which shows what has happened to the US dollar since it was invented.


It has been on a crashing downward spiral since the 1930s and your maths with T-Bond debt is the final denouement of the chart, like Faber says - the ultimate value of the existing fiat dollar is zero.

It did not have to be that way. The problem was the crash of 1907. Up until that time people regarded market crashes and recessions like forces of nature. Like a hurricane, it comes and goes, get over it. But governments were not satisifed. They wanted to tame this force of nature (the cleansing process of capitalism) where bad companies fail and bad debts are written off and bad borrowers go bankrupt.

The cost 100 years later is a totally debased currency as printing has been used to solve every bad debt problem since the 1930s. Gold standard long demonized.

How we have all got away with it for so long is a function of technology - everyone thinks they are getting richer when they have flat-screen TVs, cellphones, SUVs and McMansions, also a function of gloablization - all the dirty, cheap jobs are done overseas.

It is not sustainable. A 100-year experiment of a government-controlled economy is heading for the lab sink. Shame it will ruin millions of lives in the meantime.

SWRichmond's picture


Re: your last three sentences.  The problem is: which hills?  Personally I believe that this idea of forming small survival groups is the functional equivalent of "security by obscurity" which, as we all know, doesn't work.  Economics and politics are functionally the same thing: economics is about who produces what, and politics is about who gets to keep it. 

The U.S. left-right paradigm is a death trap.  Unfortunately, the larger political structures are necessary for the economy ro function at a high degree of specialization, if for no other reason to provide a functioning court system so that contract/financial disputes can be adjudicated without a lot of shooting.  Absent the functioning judicial system, capital goes into hiding and stays there, and all trade then becomes local.  Know of any hills that have got oil wells and refineries?  Manufacturing plants to make parts for your tractor?  Didn't think so. 

This means, unfortunately, that we must engage the monstrous and corrupt existing political system in an effort to save our piece of it.  I also have children who are entering young adulthood; this should be the most productive and exciting period of their lives.  I have become politically active in a libertarian / conservative coalition movement otherwise known as a Tea Party, and my intent is to help move my state in the right direction as fast and as far as possible.  It is a long-term effort, there are no quick fixes, as much as some in the movement would like to create them.  

What we have to do is actually quite simple in concept: cut taxes, slash spending, reignite liberty, empower individuals.  The difficult part: our main opponents are the Federal Reserve system (as proxy for the global banks) and global corporatism, whom together own the political system here and abroad. 

Special note to Chris Matthews: I have yet to spend any time sneaking around in the woods with guns, but I particularly enjoy your repeated forays into yellow journalism's discredit-by-association.  And one more thing: do not imagine that you will be given any special privileges should your dreamed-for system come into being.  Ideologues like yourself are among the first to be disillusioned by the reality of the fascism they help to birth and are therefore among the first to get disappeared once it is in place.  You and that idiot Olberman.

mikla's picture

Economics and politics are functionally the same thing: economics is about who produces what, and politics is about who gets to keep it.

Wow, what a great quote.


Johnlaw2012's picture

Forced index fund sales of Greek debt ( 66 Billion Euro) on July 1

LONDON (Reuters) - Investors could be forced to sell billions of euros of Greek government bonds after Barclays Capital and Citigroup strip GGBs from indices following Moody's downgrade of the sovereign credit to junk status.

"Greece government debt will thus exit all Series-L investment-grade benchmarks (for example Global Aggregate, Global Treasury, Euro Aggregate, and Euro Treasury) on July 1, 2010," investment bank BarCap said in its statement on Monday.

"The four-notch ratings cut on Greece by Moody's takes GGBs out of most index-tracking funds. We estimate that total forced selling in GGBs could amount to some 30 billion euros," said Harvinder Sian, a bond analyst at RBS in London.

ambrosiac's picture


Hey, this old continent can learn new tricks.


Eat our dust, Madoff.

-273's picture

Few bankruptcies were known in France before the sixteenth century. The great reason is that there were no bankers. Lombards, Jews lent on security at ten per cent: trade was conducted in cash. Exchange, remittances to foreign countries were a secret unknown to all judges.

It is not that many people were not ruined; but that was not called bankruptcy; one said discomfiture; this word is sweeter to the ear. One used the word rupture as did the Boulonnais; but rupture does not sound so well.

The bankruptcies came to us from Italy, bancorotto, bancarotta, gambarotta e la giustizia non impicar. Every merchant had his bench (banco) in the place of exchange; and when he had conducted his business badly, declared himself fallito, and abandoned his property to his creditors with the proviso that he retained a good part of it for himself, he free and reputed a very upright man. There was nothing to be said to him, his bench was broken, banco rotto, banca rotta; he could even, in certain towns, keep all his property and baulk his creditors, provided he seated himself bare-bottomed on a stone in the presence of all the merchants. This was a mild derivation of the old Roman proverb-solvere aut in aere aut in cute, to pay either with one's money or one's skin. But this custom no longer exists; creditors have preferred their money to a bankrupt's hinder parts.


Thoreau's picture

Don't expect Germany to follow through with funding more bailouts.

chrisina's picture

Funding? Funding is so passé and complicated.

Printing is so much easier.

If you add the US, Europe, Japan and the various other countries in the OECD, there is about 150% to 200% of GDP worth of private and public debts that are NEVER going to be paid back.

Say about $60 trillion worth of debt that is actually worth nothing. That's excluding unfunded liabilities of another $60 trillion which will also NEVER get funded.

So far our central banks have monetized a few trillions of that with a first round of Quantitative Easing. They'll most probably try another small round of a few trillions within the next year or so.

But then will come the big one, for they can't continue doing small rounds of QE at this slow pace for much longer because that would cause a sufficiently large percentage of debtholders to understand what is cooking for them (some have already understood, but they are a tiny minority for now) and start running for the exits trying to convert all their paper assets held in the credit system into hard assets.

So they'll have to do the big one all at once, ie print enough worthless paper to "compensate" savers before most of them try to pull it out of the system. That one will most probably take place during the presidency of the next POTUS (whoever that be).

It's all going to be very very painful in the end.

But don't worry for the elites and the well connected. If they're not stupid (which I don't think they are), they allready have their lifeboats ready in the form of a safe offshore account in a private bank separated from the credit system with no liabilities and some property outside of the danger zone.

Augustus's picture

The funding of bailouts will be done by any holder of euros.  The holders cannot avoid it.  When the ECB takes in a monsterous amount of various state debt at 100% and passes out euros, it is a debasement that the Germans cannot avoid.  That is the whole point of how this will lead to the ultimate collapse.  The outcome has never been in doubt, it has just been the timing of the event, the speed of the collapse.  Once the dominos start falling not one will be left standing.

The ECB is doing this for political reasons to maintain the power of the pols.  No one will tell all of the little MPs that they are unclothed puffed up toads.

joe.schmuck's picture

Electronic Liability Outsourcing


Dismal Scientist's picture

The Germans are going to impose capital controls, sooner rather than later. Hissy fits all round from the core, as they realise they should have let the Greeks go under. Once again, though, you have to say, just give the bondholders a haircut and restructure the debt. Take the medicine, not drink the Koolaid...