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Accelerating Deposit Flight In Ireland Forces Irish Central Bank To Print Money Independent Of ECB
It appears that Irish savers are sufficiently smart to realize that their money is no longer safe in a banking system whose existence is now only backstopped merely from referendum to referendum. As it is very unclear what will happen to the IMF/ECB rescue mechanism once the Irish election is held in March, with a material possibility that the whole plan will be unwound, leaving the country's financial system in the wind, a behind the scenes bank run is accelerating. Incidentally while this was the topic of the December letter by Guggenheim's Scott Minerd, which we discussed in a post titled "Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations", his just released January missive deals with precisely the same topic (see chart below). So faced with the prospect of accelerating deposit redemptions, what does the Irish Central Bank go ahead and do? According to the Independent it has gone ahead and proceeded with that traditional recourse to all regimes in the bring: print money. "The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money." In other words, whereas Ben Bernanke may be 100% confident that US inflation courtesy of POMO and inflation printing will be absorbed by the "massive" excess slack in the economy (oddly enough it wasn't in Tunisia, as food prices hit records despite surging unemployment), we wonder if he feels the same way about other countries in the world, which are already part of a monetary union, yet which have decided to boost the "other assets" line in their balance sheets.
More from The Independent:
ECB lending to banks in Ireland fell from €136.4bn in November to €132bn at the end of December, according to the figures released by the Irish Central Bank yesterday.
At the same time, the bank increased its emergency lending by €6.4bn, bringing the total it is owed to €51bn.
The latest data does show a levelling off in demand for the loans. Emergency lending to banks shot up €16bn in November, but overall demand for the loans only increased by €2bn in December when ECB and Irish Central Bank figures are combined.
However, the figures also provide the latest evidence that responsibility for funding Ireland's broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading "other assets".
A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.
News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.
What is the ECB's response to learning that its own member countries have essentially detached themselves from the ECB monetary mechanism?
A source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.
The volume of those loans surged from €95bn in August 2010 to €136.4bn in November, as Irish banks repaid their bondholders without being able to refinance in the private sector. The ECB loans prevented banks that could not raise funds from the private sector running out of cash after repaying their own lenders and meeting deposit withdrawals.
So let's do the math: ICB "money printing" has increased by €40 billion. For a country whose GDP is about €160 billion, this means that Ireland has printing the equivalent of 25% of its GDP. Put in American terms, this would be the equivalent of about $3.5 trillion in 3 months... In this context we wonder just what the ECB considers "systemically significant."
Tangentially, speaking of "other assets" we can't help by note what we observed during our last comment of the Fed's balance sheet. At $114.480 billion, it may behoove someone to inquire just how the Fed has well over $100 billion in "Other Assets" and what is contained in there. The chart below shows how this number has grown. Frankly, for all we know this could be shares of Amazon and Netflix stock. After all, these are "assets" and they most certainly are "other."
But back to Ireland. We would like to end with a chart created by Scott Minerd showing the wholesale abdication of Irish banks by its depositors:
And his comment on the one trend that the ECB has been unable to reverse yet in any of the distressed countries:
There is a plethora of proof that the crisis isn’t abating. Greece’s long-term issuer default rating was just cut to junk by Fitch with a negative outlook. In addition, the problems in the Irish banking system continue to expand. In November alone, 27 billion euros of domestic deposits (5.4 percent of the total deposit base) fled Irish banks. Total deposits were down 15.1 percent year-over-year and deposits from non-Irish residents declined 28.6 percent. Keep in mind that the crisis in Ireland didn’t broadly surface until late in November. I realize that I said the same thing last month about the situation in Ireland, but with data trending like this I cringe thinking about what the next set of monthly data may reveal.
In other words, just like investors in US stocks, so depositors in European banks refuse to be lied to again. And the more money printed by the ECB (or regional banks as we now learn) as a response to deal with this capital shortfall, the greater the inflation threats will be across Europe. Of course, these will merely reinforce already validated inflation in Africa, and most certainly Asia. And somehow the US government and Ben Bernanke is expecting anyone to believe that just because the highly irrelevant Core CPI is flat that America will not be next?
h/t Ciaran
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Irish PM to make statement on future at 5pm (25 mins)...
Taoiseach Brian Cowen is to confirm this evening whether he intends to lead Fianna Fáil into the next General Election.He will address members of the media at 5pm at the Alexander Hotel in Dublin.He is widely expected to confirm that he will remain in office.The news conference will be streamed on RTÉ.ie/live.
http://www.rte.ie/news/2011/0116/politics.html
Brian Cowen to remain as Fianna Fáil party leader and Irish PM. However, he will face a vote of no confidence next week. The vote will be a secret ballot.
The previous ZH article on an imminent Irish bank run really made me sit up. I now see that there will be no people lining up outside banks. The Irish can just print euros. The ECB is right - this isn't a significant amount for the eurozone.
Do I have a mild paranoia that is susceptible to stories like this or was the first story somewhat sensationally written?
as long as the fed is pomo there won't be crashes, but there should be correcctions, because they are a goold thing. but with quants, etc doing stuff it isn't going to happen until retail joins in the party.
Meanwhile, back in Estonia...
http://www.montrealgazette.com/news/Estonia+money+burn+after+euro+switch...
They are printing money everywhere...........
Does it hurt if they print up an extra few debt notes.?
The debt/money printing throttle is "full up" and there will be no way to shut it down. The printing of debt is the only thing keeping the velocity of debt moving so the financial system can draw their fees.
Take a look at the money outflows in the Muni market.
SPDR Nuveen S&P VRDO Municipal Bond ETF
Below is the VRD which is a (variable rate debt obligation) are redeemable through PUTS (backstopped by banks) and the NAV's are adjusted monthly (no floating NAV). There are multiple tickers for tracking the funds performance. These VRDO's are used by wealthy people with large sums of money to invest ($100K plus per unit) looks like a stampede "out" here too.
NYSE ticker VRD
VRD.EU which tracks its (Estimated Cash Amount Per Creation Unit) Down 40% friday
http://www.google.ca/finance?q=INDEXNYSE:VRD.EU
and
VRD.TC Which tracks its (Total Cash Amount Per Creation Unit) Down 45% friday
http://www.google.ca/finance?q=INDEXNYSE:VRD.TC
Summary of VRD:
http://www.google.ca/finance?noIL=1&q=VRD
More here on VRDO's (variable rate debt obligation) (a primer short read)
http://www.invescopowershares.com/pdf/P-VRDO-WP-1-E.pdf
Tuesday is D-day for the muni market.
I know, I know Uncle Ben will take care of it ;)
Gold pulls back, stocks pull back (remember May through August 2010?). Doesn't mean the underlying trend is different. The secular gold bull is still uninterrupted now going on 12 years. Stock bull market?
Two things: In Barron's this weekend Marc Faber points out that when priced in gold, the S&P has had a negative return for the last 12 years.
Second, FT reports that the collateral put up by AIB is... Wait for it... The debt they owe to the Irish Government. FT points out that an exception was made to accept this debt.
http://www.ft.com/cms/s/0/8796eb78-1fea-11e0-b458-00144feab49a.html
It's over in Ireland.. whats next?
All that is saving the world now from total chaos is Danzig with the Stars.
You have always been a smart one...
Brian Cowen and Bernanke sit together on a park bench reading news papers. Ms. Sarkozy walks by wearing daisy dukes and boots. A cowboy hat keeps the bright sun from her eyes. Brian Cowen stands up and tips his hat to her. Bernanke follows and does the same. Cowen turns to Bernanke and sings, "Anything you can do I can do better. I can do anything better than you." Bernanke, "No you can't." "Yes I can!" "No you can't!" "Yes I can."
Obama enters stage left. He is dancing, "Yes we can, can, can, can, can, can, can." He lies down across the bench on his side with his arm supporting his head, smiling. Larry Summers comes out stage right eating a hot dog with one hand and holding a soda in the other. "She's gone country, look at them boots, she's gone country, back to her roots, she's gone country, a new kind of suit..."
Summers pushes Obama off of the bench and spills his soda on the ground. The ketchup from the dog splashes onto Barracks face, but the man fails to notice. Summers has instantly fallen asleep. Barrock looks up in surprise with a worried frown. "What is my line?" He says to the tune of 'Coral of the Bells'. The orchestra holds the note....everybody joins in. "What is his line, what is his line, what is his line, what is his line." "I am but a puppet, never needed to speak my mind."
"Give a give a give a Garmin!" Sarah Palin pokes her head from behind the curtain. The audience jumps from their seats. "Sarah wasn't supposed to be here!" "She is so hot, I would totally do her." The paying custies say to each other.
She steps out and walks to the front center wearing a flowing dark red dress and no glasses. "America, you are doing a wonderful job. Keep being you. And keep fighting the good fight." Carla joins her. "Let us all join together and begin the New World Order." The other players join them and hold hands. "We are the Champions my friends..." They bow, the crowd cheers.
@ MLH
Lulz. Instant classic. Love the full-on ghey "Glee" quality mixed with "Up With People." I would love to see this on youtube. Maybe xtranormal?
Thanks Cursive,
I have toyed with Xtranormal once, maybe I should again. It sure is popular now...
Just wait until the Spanish Cajas are recapitalized by Bank of Spain using thin air.
They have played most of the tricks in the books already:
1) Mark to unicorn bank asset valuations
2) Withholding foreclosures
3) Fudged government statistics
4) Shotgun bank mergers
5) Failed stress tests
6) Tapping ECB funds
7) Delinquent loans not written off
8) Making cajas joint stock companies
9) Feet dragging disclosure of key metrics
10) Downplaying increased borrowing costs
11) Using an official-looking intermediary (FROB) to channel taxpayer money
http://www.propertywire.com/news/europe/spanish-banks-foreclosed-propert...
http://www.eyeonspain.com/blogs/SpanishBusinessNews/4510/spains-bank-mer...
http://www.eyeonspain.com/blogs/SpanishBusinessNews/4803/spains-banks-se...
..etc..
"Kick a can, save a Spanish bank"
Robo those charts you post are ancient History. Do you drive backwards also, looking in the rearview mirror. Look at any measure of the Mkt internals such as New High or AD, most are declining. Reality check time.
okay ...maybe i am being naive, but why isn't this the black swan?
http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/
4% x 1.4 tn = 56bn, x 2 to 3 years
excluding the write offs of the delinquent (foreclosed) loans?
wtf!!! i guess i knew it was there, just forgot or minimised the fraud. No wonder the banks don't want to foreclose quickly (or a I being way too conspiracy theorist that banks determine the rate of foreclosures despite what goes on in the courts, well unless they make more money out of foreclosing than not foreclosing, ugh)
Saw this. John Carney reiterated it on his page on Thursday. That is $56 billion in already booked profit that will need to be restated, in addition to the losses from the actual defaults.
Emailed it to the tips address here. Was and am wondering what TD makes of this.
Same reason that intel's earnings coming from paper shell companies in asia-pacific isn't a black swan. The system is entirely enroned and dowell schlumberge'd. ENTIRELY. Their goal is to lie and stay facaded while all the honesty dies and is dismantled. What's important here is not who lost or who won but that the people who are "losing" are treated like they are losing and the losers who are winning are treated like winners.
@Hephasteus
Well said. True and very sad, indeed.
Da-yum. JPM didn't say anything about this on the Friday earnings release. Maybe our ZH friend who brought that FAZ lawsuit could add this to his evidence list. I gotta get back to reviewing the best water purification systems....
Stock pumping:
Like being given a tour of that beautifully prepared garden of raised beds, immaculate weeded gravel paths, beds filled with hardened left-over flood slurry and a one inch sprinkling of compost and freshly trucked soil.
No probing in the dirt allowed. Just watch the beautiful straight rows, presumably seeded, but guaranteed to not produce a crop.
These are repos, backed by collateral from Ireland's Sick Six banks. Extra-sleazy repos, to be sure, backed by collateral even the ECB won't touch, but if (when?) these things lose money then the Irish taxpayer will be forced to cover the losses.
Lorcan Roche Kelly's blog has other relevant posts, including one on the latest, €51bn, figure.
They need a jubilee amendment, just like we do:
http://strikelawyer.wordpress.com/2011/01/15/amending-the-constitution-t...
http://strikelawyer.wordpress.com/2011/01/15/us-constitution-28th-amendm...
http://strikelawyer.wordpress.com/2011/01/15/28th-amendment-first-and-se...
http://strikelawyer.wordpress.com/2011/01/16/28th-amendment-section-3/
No rights are given in Europe TO JUST A SINGLE COUNTRY.
Whenever you give 1 euro to Ireland, YOU CAN BET YOUR ASS ALL THE OTHER COUNTRIES WILL GET SOMETHING TO.
Fair is fair.
Is Belgium printing its own Euros?
Nop, that's the advantage of having 6 governments in a country with 10 million citizens who don't agree a single bit.
We're to occupied with OUR NEW WORLD RECORD OF A COUNTRY WITHOUT A WORKING GOVERNMENT!
That one really put us on the map...
I can't wait to buy the new Guinness book of records 2011...
That's not the real worry. Have Germany and France been printing all along to assure their banks will have enough to cover a run?
How much of this funny money is floating around out there?
So Guiness will become cheaper in dollars right? Not that I care. I can not drink the Guiness that is shipped to America. There is something special about fresh Guiness. It is the best.
Not to worry. The Irish banks are going to give out free glasses with leprachauns on them along with boxes of Lucky Stars. I for one am ready to open a new deposit account. Printing your own money -- it's magically pernicious!
Just imagine in the US case that every state could print it's own money.
If that isn't inflationary I don't know.
The ECB used a squirt gun UNTILL NOW and now they are going to use a SUPER SOAKER WITH DOUBLE TANKS!!
I wonder what the Greece, Portugal and Spanish privileges are...
And in the US case, in the late 1800's, every state, even every bank could print their own money.
In Canada, they where called "bank tokens". Call it whatever you want but this is bad.
The question is: how do you differentiate the money from the flock?
the FEd defines the 'other assets' category thusly in the footnotes to its published balance sheet.
"Includes other assets denominated in foreign currencies, which are revalued daily at market exchange rates, accrued dividends on the Federal Reserve Bank of New York's (FRBNY) preferred interests in AIA Aurora LLC and ALICO Holdings LLC, and the fair value adjustment to credit extended by the FRBNY to eligible borrowers through the Term Asset-Backed Securities Loan Facility."
Of course, the 'includes' suggests there is other things in there.
I'll wager if you flushed out a fuller definition of 'other assets' it would include a list ending with 'and others.'
.
Looks to me like Ireland is taking a step away from the EU and the ECB.
The sentiment and probable new government in Ireland will be sympathetic.
Although RobotTrader gets "spanked' alot around here, I, for one, value his (admittedly limited) input.
There is no question that he follows the tape closely - and that, eventually, the tape will turn. I believe, at that time, Robo will catch the move - because he watches so closely.
The Irish, citizens of the English colony of Ireland (as has essentially been the case for centuries) are being stripped. This is the purpose of "colonies". The "early perceivers" understand the game and are bailing on the banks. But even this may prove futile.
But what about the English "colony" of the United States? Is the Anglo-American banking syndicate "real" and do they have the power to do to us what they are doing to the Irish.
You decide - but you better get it right.
That's the big picture. Meanwhile, I wait - for the turn -
And monitor RobotTraders view closely.
What are you talking about. He follows nothing. He sold all his equities except for his mining stocks which are getting crushed.
Honest opinion is the ZH puts this up just to keep the discussion going.
Its not really even a point of view.
Just a waste of electrons.
Dude.... you just totaly harshed my buzz.... wtf? dont be such a downer?
If the Irish banks need to borrow or create money to pay their bondholders, doesn't that mean the Irish banks are insolvent?
Isn't this happening in the US as well? Haven't there been something like 28 consecutive weeks of mutual fund withdrawals? And hasn't insider selling been 100-1 vs insider buying for quite a while?
The Irish Central Bank is issuing Euro's? And the collateral is Irish bank bonds? The same bank bonds with a guaranteed bid from the Irish government? Being the same government whose bonds have a guaranteed bid from the ECB, the issuer the Euro?
That makes sense.
Not to worry we are a very artistic people..............................
www.youtube.com/watch?v=A3Vi-lhhYWo
no worse than the wallmart trash here.
I am sorry but you just don't get it....
The Irish economic mess explained in 3 parts - this pretty much covers all the domestic failures in this place - a must see for Irish voyeurs
www.youtube.com/watch?v=PJioWss7HeI
That was good Dork, what's with the old woman with dark eyebrows and blonde hair???
She sounds like a naturalized German woman - a lot of very strange but interesting continentals moved here back in the 60s and 70s when everything was cheap - many had the intelligence to move out in the 90s but I guess this woman stayed for the long haul.
Sorry, I watched like 30 seconds and after they used the little kid as a fire to warm thier hands I got out of there.. I will give it my full attention... My bad!