War Of The Central Banks?

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com

The coordinated confidence-inspiring words from the Eurozone’s fearless leaders yesterday and today about doing whatever it would take to save the euro wasn’t about Greece anymore. Its life support may get unplugged in September. Politicians have apparently given up. The tab isn’t that dramatic: default and return to the drachma would cost Germany €82 billion and France €62 billion (Ifo Institute PDF). Survivable.

The fearless leaders were afraid of Spain, whose vital signs were deteriorating. Unemployment hit 24.6%, worse than Greece’s 22.5%. In the southern region of Andalusia, it rose to a mind-boggling 33%. Youth unemployment (16-24) set a sobering record of 53.3%. Even more worryingly, in a country where family solidarity and multi-generational households are the norm, the number of households where no one worked climbed to 1,737,000. So, in the first half of 2012, over 40,000 Spaniards emigrated—up 44% from last year. Instead of consuming and producing in Spain, they took their education that society had invested in and sought their fortunes elsewhere.

Despite repeated assurances that Spain would not need a bailout other than the €100-billion bank bailout, Spanish Economic Minister Luis de Guindos flew to Berlin to meet with German Finance Minister Wolfgang Schäuble ... to discuss a bailout. For €300 billion. And hours beforehand, “sources” told the Spanish media that if Spain didn’t get its wish list, whose top item was a massive bond-buying program by the ECB to force Spain’s borrowing costs down, Spain would consider “more forceful measures.” Because Spain had no money to meet its obligations in October, it would have to default! The D-word made into print. A scary message for the fearless leaders of the Eurozone [for that whole debacle, read... The Extortion Racket Shifts to Spain].

It worked! Thursday, European Central Bank President Mario Draghi caved: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Emphasis on believe me—as in “I beg you, please believe me”—because the other part of his pronouncement, within our mandate, is controversial. It’s where the ECB had clashed with the German Bundesbank and others who stubbornly clung to the notion that the treaties governing the ECB gave it only one mandate: price stability. Not propping up stock and bond markets.

Draghi outlined a way around that single-mandate limit: if high borrowing costs for certain countries “hamper the functioning of the monetary policy transmission channels, they come within our mandate,” he said. In other words, every time yields go up somewhere in the Eurozone, the ECB is free to “do whatever it takes” to force them down.

On Friday, with the D-word still hanging heavily in the air, German Chancellor Angela Merkel and French President François Hollande talked on the phone—for the first time? A call that was ballyhooed to the media. They were “fundamentally attached to the integrity of the Eurozone” and were “determined to do everything to protect it.”

Then it bubbled up that the ECB might take concerted action with the States to lower the cost of borrowing for Spain and Italy, though it might take a few days or weeks to finalize the mechanisms. According to “sources,” the ECB could re-launch its program of buying Spanish and Italian bonds in the secondary market. The EFSF bailout fund and its successor, the ESM, could be used to buy Spanish or Italian debt in the primary markets. And the ECB could take Fed-like action if the ESM were given a banking license. It would allow the ESM to borrow from the ECB and then buy debt in the secondary and primary markets. There would be “no taboos,” Draghi said. Debt crisis solved.

He’d thrown down the gauntlet. The ECB’s moderate bond-buying program last year caused a stir in Germany. ECB Council Member (in line to be its next President) and Bundesbank President Axel Weber, who’d been overruled, resigned from both jobs over it. ECB chief economist Jürgen Stark retired in protest. Politicians launched attacks against the ECB, among them Frank Schäffler (FDP) who’d said, “If the ECB continues like this, it will soon even buy old bicycles.” In March, the ECB stopped the bond buying program.

A restart would be “problematic,” a Bundesbank spokesperson said dryly. On the other hand, the Bundesbank considered it “not problematic” if the EFSF bought Spanish debt. Hurdles remain. Such action would have to be approved by the Bundestag’s “Group of Nine” whose representatives are on vacation. And Spain would have to formally request a bailout before the EFSF could buy its bonds—but Spain is still denying that it’s even discussing a bailout. It would be the sixth of seventeen Eurozone countries to be put on life support.

In June, Cyprus had held its nose and requested aid. Now, European technocrats are swarming once again over Cyprus to find out how much it would need. And each time they do, billions are added. How can such a small country blow through so much money? Well, read.... The Ballooning Cyprus Fiasco.

And then, there’s the ultimate questions..... But Who The Heck Is Going To Do All The Bailing Out?

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Bob's picture

Michael Hudson (who views Krugman as both incompetent and controlled opposition) foresaw it as a worldwide bankster war, handled by their Central Banks, on the common man, i.e., labor which, in this country, is being covered up by Obama and his supercommittee bullshit:


It's an interesting 15 minute video. 

He was the first guy to predict (nationally) the "global financial crisis" back in March, 2006.  Now how could he have thought such a thing would actually be engineered?


He prescribes debt write-down.

Peterey's picture

Have you also had the impression that this week rant by mr Draghi (Enter the Draghi, ... the first part of the video on mr Draghi is fun), was a bit over-done and emotional and resembled the rant by former Greek finance minister Giorgos Papakonstantinou warning short sellers that they will be crushed? When I saw mr. Draghi, I thought that, if Central Bank policy communication becomes open reprimand, this might signal a weakness and not a strength on their part. Let me know what you think...

Week-end review (23-27 July, 2012)


Joe A's picture

Beggars can't be choosers and they certainly cannot be extorsionists

Mareka's picture

Being president of a European country must be a pretty damned easy job. 

It seems that meeting to save the Euro has been all these people have done for about 2 years now.

Don't Merkel et al have any other responsiblities?

xela2200's picture

Good. In general, the less politicians do, the better countries tend to fair. The best economic environments that I have seen in the US are when congress is dead lock. Business and people can adjust to good or bad but not to uncertainty.

aminorex's picture

the pdf link is broken.

MillionDollarBoner_'s picture

At what point will it be cheaper for Germany to leave the Euro than to stay in it? I.e. when does it become advantageous to drop out, renege on all promised, repudiate all share in the common debt and invest the funds into Germany rather than the deadbeats?

Has anyone done the math?

mudduck's picture

Why call giving money away to any gov anywhere 'loans'. They have no intention ever of paying down let alone back in full.  

Amagnonx's picture

It always surprises me that common people arent screaming for default - they should accept nothing else, whatever nation they belong to.  All national debt should be defaulted on - and Id go further and say everyone should also default on anything they supposedly owe to banks.


They have some idea that 'bad things' will happen if there is a default, and yes its true bad things will happen - the salient question is, to whom?  It is the debt pushers who will suffer the greatest loss.


Also, there is the 'risk' that if people get the idea of defaulting, that they will default on taxes - and wouldnt that just be an end to the looting of the nations.

Often people remark that voting seems to achieve nothing, then try this - vote with your tax money - just dont pay the corrupt govt.  There will be consequences, because the state will see you as the enemy - but perhaps you will attract like minded voters, and once the power of this vote is seen - there is a chance of a landslide in favor of freedom.

xela2200's picture

Funny how Iceland is not in the news any more.

skipjack's picture

Really ?  And which socialist or communist state would be your choice ?  Because, it's obvious thruout history that socialists whether of the left or right do not hesitate to confiscate first your resources then your life.


I'm making my stand here in the US - we at least have the most recent memory of what it was like to be a (mostly) free people.

babkjl's picture

Join the Free State Project and move to New Hampshire or Wyoming.  It appears to be the best hope.

YesWeKahn's picture

Who is doing the bail out? The answer is simple: Bernanke, as an unelected official of a porn addicted agency to bail out those countries on behave of future generations of americans. Thank you Bernanke, what a fucking asshole!!!

AnAnonymous's picture

Ah, quite good. Not half bad.

So it is a blog of cross referencing.

And good piece of news, numbers to show the progress of the new wave of colonization as triggered by US citizens is reported.

But where is the link to that post that laudated the adventuring spirit of Spanish going to Argentina, the most entrepreneurial of Spanish people and how they would help to develop Argentina?

Holy cow, this US citizen author can not write a word on wine without referencing to the previous articles written on wine but suddenly, when it comes to refer to the article laudating colonization, pufff, US citizen magic, it is missed.

US citizenism at work.

Savyindallas's picture

I'm inviting the ECB to my next garage sale  -and maybe I should quit recycling and throwing good stuff out in the trash  -I have some real good quality trash that would serve to bolster and upgrade ECB's balance sheet.

Arnold's picture

Can I assume that Unemployment Numbers in Europe are not juggled as they are in the USA?

I do not assume that Sino numbers are anything less than fantasy.

Nachdenken's picture

Jugglers are everywhere, some juggle more subtly than others.

Reptil's picture

central banks -> GOLD

sessinpo's picture

"But who the heck is going to do all the bailing out?"


Silly question.  It can only come from the productive private sector and the revenues they generate. Tax payers around the world will pay, often through forced support of these corrupt organizations such as the FRB, ECB, IMF, World Bank and the UN to mentioin a few.

falak pema's picture

the rants here confuse first world irreality with Euro irreality.

The demise of civilization is much deeper; the consequences we see on this side of the pond in EU reflect the same situation both in USA land and Japan; not forgetting Oligarchy Londonistan.

It is a global scam and its being rammed down the orifices of sheeple all over mother earth land. 

See the bigger picture to connect to the dots of this race to bottom orchestrated by those who don't want to lose their fiat fortunes, and prefer that governments print and add debt to debt; which is socialised as soon as its spawned to allow the hot money it releases from private balance sheets to run to Caymans galore!

"My name is Bond, James Bond, and I'm licenced to kill!" 

BigDuke6's picture

Good fp
Oligarchy londonistan I will remember.

Of debt, they have made it easy to get into debt especially for the unwary and the young.
The only solution is education and living within means.
The young don't often like either. :(

LawsofPhysics's picture

Always enjoy posts that speak to the truth. In short, just what is the real collateral behind all this "wealth". If you are in debt, you are "bank owned", period. Be prepared to be sacrificed in the war of the CBs. Same as it ever was.

sessinpo's picture

Good post.


My name is Bernanke, Bernard Bernanke, and I'm licensed to steal"

AurorusBorealus's picture

over 40,000 Spaniards emigrated


Americans should pay heed.  Einstein and Freud did not build bunkers and stockpile ammunition.  They fled the country (in Freud's case just before the worst hit).  Get out... Get out now, with whatever you have... I highly recommend South America... so much, in fact, that I intend to put my money and myself where my mouth is (and I don't have as much money as most of you).

AnAnonymous's picture

Yes, yes, America is no longer possible in America.

Lets rebuild America elsewhere.

Signed: An American.

Savyindallas's picture

What about here  -shouldn't white Anglo folks be allowed to cut grass and be maids in THe Hamptons? Why do all the illegal Mexicans get such plush jobs.

monoloco's picture

If we are lucky, we'll soon have Foxconn factories where we'll all be able to find employment making shiny baubles 12 hours a day for minimum wage.

sessinpo's picture

Scientist do not necessarily make good soldiers you want in a fox hole with you. It's not like I need or want someone to tell me how relative a bullet penetrating my skull will be or how I'd feel about it. Soldiers are often cannon fodder, blue collar or lower. Their  mobility is less then those wealthy or connected. They have less options and thus they fight. Not a fair comparison. The reason most don't leave is that it is not a favorable economical choice.

As much money as most of us? That is the one fatal mistake of socialism. It's not about what you have compared to others. It's about what you have and what productive thing you do with it despite others. In other words, you could be quite productive here in the USA and do just fine. You might also flee to another place and still lose it all. You never know. Good luck in your venture and I hope it works out for you.

steve from virginia's picture



Behind the euro-facade there is nothing real.


... in a country where family solidarity and multi-generational households are the norm, the number of households where no one worked climbed to 1,737,000. So, in the first half of 2012, over 40,000 Spaniards emigrated—up 44% from last year. Instead of consuming and producing in Spain, they took their education that society had invested in and sought their fortunes elsewhere.


There is nothing for them to do, the folly is expecting the robots/Chinese to step aside and give the hapless Spanish youths their jobs back.


Better for the Spanish youths to learn how to farm in their parents' back yards ... too bad these have been turned into Spanish versions of American suburbia for speculative purposes only.


Nobody accepts that the central banks have nothing real to offer, certainly not circulating money ipso facto the central banks cannot 'print' anything other than empty promises ... the same empty promises that put the continent into the fire in the first place.


Whether anyone admits it or not: it is different this time. A decline in asset prices is not a correction but a fatality.

sethstorm's picture

There is nothing for them to do, the folly is expecting the robots/Chinese to step aside and give the hapless Spanish youths their jobs back.

It is not a folly when it is the right and only thing to do.

AnAnonymous's picture

Better for the Spanish youths to learn how to farm in their parents' back yards ... too bad these have been turned into Spanish versions of American suburbia for speculative purposes only.


Well, from US citizen perspective, there are plenty of people around the world unable to keep,uuummm, no, unable to farm their land so US citizens will feel obliged to take those bits of land to farm them.

New wave of colonization in progress...

ReactionToClosedMinds's picture

sorry .... this is all too mindboggling.  Am posting some comments from DecisionPoint.  It is a pure technical. price action driven website service.

  1.  "......Today's price acton was mostly straight up with very little consolidation."  {my emphasis ala bold italics}
  2.  Conclusion: The markets continue to be whipsawed by news that at first inspires confidencethat is soon erroded by the underlying reality of the situation. The bottom will eventually fall out, but there is no way to know if that event is days or years in the future. In the meantime, we will continue to see constant changes from confidence to fearfulness. We certainly hope that this situation will not continue to manifest itself in the kind of chop we have witnessed in the last two months. Currently the trend is up, and internals are amenable to a continued rally. But resistance is not far away, and cycle pressures are not favorable."

This is becoming a 3 ring circus ... EU, USA & PRChina (with Japan the Sorcerer to the Apprentice ?)




New American Revolution's picture

Doesn't this sound like the same FED  backstop for the LTRO program last winter.   That was suppose to be short term paper.   Are they rolling over the old stuff and adding new stuff?   Just askin.... Serfs Up America!

Piranhanoia's picture

Was it the last act of the desperate?  Needed to buy the weekend maybe?  

If we know it won't work,  he does.

robnume's picture

I'm shocked, truly shocked that a central bankster would purposefully use an ambigous phrase such as, "Within our mandate". You know this sounds sooo familiar; where could I have heard...FEDERAL RESERVE!!! That's it!!! Btw, where do I sign up for the new interplanetary reserve currency? This sounds just too good to be true! 

engineertheeconomy's picture

Economics 101

1) Printing paper money is exactly the same as stealing money. Stealing is the same as "winning". The Government/Bankers win and everyone else loses everything 

2) Loans are a trick, a scam. They're impossible for everyone to pay them off because people have to compete to obtain the interest payments which are never printed or released into the economy. The Government/Bankers know this and take advantage of you, so you become homeless and go hungry

3) If you invest money the Government/Bankers will trick you out of it one way or the other

4) All Bankers/Governments are purely criminal enterprises and should be arrested immediately

q99x2's picture

Who is going to put wealth in such jeopordy? No one that is who. It is smoke and mirrors through fraud. Maybe you can buy bonds and get out of them within a few hours at a profit I don't know. But if not since bonds aren't even worth daytrading who would buy them without the fear of being chased down an brought to justice. Its all beyond me.

ReactionToClosedMinds's picture

this guy WolfR is good ... great find ZH

Germany benefits from the Euro and are already 'in hoc' via the Bundesbank 'recycling' periphery Europe trade deficits.

That all said, methinks Germany, Netherlands, Denmark (a pesky border partner to almighty Deutschland) and anyone else breathing real oxygen (possibly Poland, Czechs, Bulgaira, et al) form a 'credible pact' Euro with bond benefits and requisite 'seats at the table' while 'conflicted' Europeans, starting with the French and Italy. lead the 'wannabe' credible Euro league.

Now remember, as much as this seems like a 'diss', Spain has developed the best Euro-football (soccer) regime in all of Euroland sport ... no insignificant achievement.  Germany, England et al can learn from what Spain has produced.  Spain's achievement operates on at least 3, maybe more, management dimensional levels.  Too much for a Friday night to explain.

In the long run, this is what it has to be ... a two tier Euro system.  It is also the human way ... human nature that is.  Harness the envy, jeolousy, disdain, anger, dissatisfaction in a productive, constructive way versus the constant French Revolution politically correct nostrums Europe's leaders seem infatuated with.

And forget Alexander Hamilton as a role model for the new 'bond side of Europe' via a 'sinking fund'.  Hamilton was a unique product of British colonialism that perfectly fit the then evolving American mercantile model.   It is too much for here to get into why Hamilton was uniquely relevant to America's development  versus transferring his projection globally.  Europe has its own destiny.  And if Germany is willing to play along then that should be the crucial determining factor.   And if you succeed, maybe the obdurate Russians (and more) may want to deep-six their 'outside Europe' mindset and finally become brothers.  Even NAFTA driven cousins CanadA, USA and Mexico.  I'm sure Canada and Mexico wouod follow and then eventually the Americans.  But Europe has to grow up a heap in the next few months.  Merkel needs help.  Netherlands, et al, where are you?

Once upon a time the Netherlands were the key to the creation of the present day American state even apart from France.



JOYFUL's picture

Interesting post...

much appreciate the intelligent musings. Please expand upon yur point about the Netherlands and America's debt to same!

///this guy WolfR is good\\\

Wolfie strong suit is as a 'repacker'...there is nothing in his work that is not part of the MSM news script...he picks up the latest authorized version of what the powerz want disseminated, and packages it into a form palatable to the tastes of his market[mostly Southerners lazy\bad...northerners industrious\forbearing]...*

I used to know a dozen guys who did the same job....tin foil wrapping on baker potatoes, pre-peel garlic, tomatoes in a tray. salad in a bag....buy a slot in the chains with a little baksheesh to the head buyer, get a deal with the guy who quik sells loads that the inspector faked a report on...

Al Pecks' Used Fruit...Wolfie's Testosterone Pit...hey, it's a living!

http://youtu.be/fVftw267SnE  [free tickets for Çircus Lupus!]

*Euro problems? "NOthing a good paring knife can't fix!!!"

michigan independant's picture

As we are going secure water, wheat and community and as we are going you will need it. They will take whatever else they want and call it good. Solvency is your problem.

fourchan's picture



i laughed at le guards attempt to blame shift the euros upcoming diaster to the usa's fiscal cliff. so ham handed for a frog.

TrustWho's picture

Will Germany leave the Euro? Every day they stay, their liabilities increase, so the discussion must be occurring.  

greensnacks's picture

German Chancellor Angela Merkel and French President François Hollande talked on the phone  ... probably because their other lines of communications are compromised:  http://www.bloomberg.com/news/2012-07-26/china-hackers-hit-eu-point-man-...

knukles's picture

When it falls apart, it falls apart.
Congratulations, Herman.

JEHR's picture

If the countries of the Eurozone had let their fraudulent banks go bankrupt (as they deserved to), the problem would have been mitigated.  Too bad!