Is the ECB starting to massively print money again?

EB's picture

Reprinted with permission from

Yesterday, Robert Wenzel at EPJ warned that the Eurozone economy is on the edge of a major downturn (emphasis ours):

A tight money policy by the European Central Bank is causing the eurozone to go into an "unexpected" recession.
In Germany, the second-quarter gross domestic product growth number of a mere 0.1%, was significantly lower than the 0.5% Keynesian economists had been predicting. German GDP expanded 1.3% in the first quarter.
And the Markit/BME purchasing managers’ index for the German manufacturing sector fell 2.6 points in July to 52 points, its lowest level since October 2009.
There was zero growth registered by France in the second quarter and the euro area’s overall GDP rose only 0.2% in the second quarter from the preceding three months, after growing 0.8% in the first quarter, Eurostat said Tuesday. Growth in Spain and Italy was 0.2% and 0.3%, respectively.
A non-money growth policy is the best policy, however, this policy, following a period of money printing results in the downturn of the boom-bust cycle as the economy adjusts to a non-money manipulated economy. Central banks rarely allow this correction to play out and return to money printing. Keep an eye on the ECB if it returns to money printing, we may very well be near the first near-global price inflation, as the U.S. money supply is already in near super-growth mode.

That last paragraph is indeed interesting, as only yesterday, the ECB published its consolidated financial statement of the Eurosystem for the week ending August 12, 2011. The statement reflects the first round of new bond purchases (€22.0 billion) since early January, 2011 via the ECB's Securities Market Programme (SMP). But it also shows that, contrary to the previous bond purchases, which were sterilized with concurrent liquidity withdrawals, last week there was a massive ramp in liquidity providing activities. Here's the asset side of the balance sheet:
We can see the €22.0 billion in bonds under line 7.1, "Securities held for monetary policy purposes", which is where the 2010 bond purchases were reflected week by week.
Here is the liabilities side:
In the previous bond purchasing period, there would be a concurrent increase in line 2.3, "Fixed-term deposits", which are akin to short term non-negotiable bills the ECB would issue to banks to soak up liquidity [reductions in refinancing operations would account for the balance of sterilization]. Last week's increase in fixed-term deposits? Zero. Instead, there was a €54.6 billion reduction in the regular deposit facility at line 2.2.
Going back to the asset side for a minute, we also see there was a €57.8 billion increase in line 5.2 "Longer-term refinancing operations" (LTROs), which is also liquidity providing. This combined €112.4 billion went into line 2.1 on the liabilities side, "Current accounts (covering the minimum reserve system", which increased €127.0 billion over the week. To be fair, there was a large drop in the prior week in this line of $48.5 billion, and it is historically subject to large fluctuations from time to time. However, Current accounts is now at one of highest amounts on record, as is the weekly change.
One final table, which lists the ECB's open market operations and demonstrates where most of the increase in Item 5.2 LTROs on the asset side of the balance sheet came from:
The highlighted LTRO liquidity providing operation is the fourth longest maturity on record at 203 days, the longest since December, 2009. Apparently, the ECB was spooked enough when it announced the operation on August 4, 2011, that it knew it would need to provide a cool €50 billion to banks for a guaranteed six months.
Going back to the balance sheet, what's interesting about the Current accounts line is it apparently contains both required reserves and any excess reserves. Contrary to the US Federal Reserve, the ECB does not pay interest on excess reserves (it does pay interest on required reserves), so banks typically keep excess reserves very low and put any excess money in the deposit facilities to earn interest.
One possible conclusion is that we are seeing very short term time preference by the Euro banks, where they are voluntarily foregoing all interest on excess reserves in return for immediate access to the zero maturity funds, if need be. It is also remotely possible that these are in fact required reserves, which have been increased due to regulatory change.
One week does not make a trend, but it is undeniable thatthere are some very large chairs being rearranged on the Eurosystem's deck, and the ad hoc day-to-day changes in monetary policy are setting the stage for a potential meltdown either from the previous epoch of liquidity contraction, or a new epoch of monetary inflation.

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simoniddings's picture

An ID is needed when you work in big organizations. It seems that a strict money policy by the European Central Bank is causing the euro zone to go into recession. The growth in Germany was lower. 

Joebloinvestor's picture

They never "sterilized" shit.

They are grasping at straws.

IQ 145's picture

"Predicting the future is real hard; especially the part that hasn't happened yet" A.) B.) C.) D.) it's a multiple choice question, feel free to guess.

Robslob's picture

Here we go again...everybody confusing market performance with the economy.

Let me help you out...production is where it is due to demand.

Printing more money into the hands of bankers does not increase production nor will companies fall for that one again.

Companies have borrowed tons of cheap money only to watch it be devalued as they don't spend it.

Companies don't spend it because they don't see any reason for growth unless it is growth from cutting which only kills demand further.

Grab a clue...laws of gravity are getting organization CB or other can fix the fact "people of fucking broke" and worse, their governments are even more broke.

PulauHantu29's picture

Thanks for posting this. I was wondering if this is just outright printing via bond purchases or if they were "sterilizing" the flood of money. It makes sense for them to increase liquidity since they fear a massive deflationary spiral secondary to the mega-massive Debt and Deleveraging. Even though it will result in seriou sinflation down the road, it seems they prefer a short term fix instead of "austerity".....mmmmm.

You answered my question. Thanks!

IQ 145's picture

Some day you may become aware of the question that you should have asked; and then you will realize that the answer is not on an internet blog; but I suppose you'll be happy enough until then.

Ivanovich's picture

If they're truly printing money, why is EUR/USD still rocking on?

IQ 145's picture

They're not printing money; they're paying the interest coupons on all those Euro denominated bonds with bubble-gum trading cards; so-no problem.

EB's picture

It's only been one week.

brandy night rocks's picture


IQ 145's picture

Is English your first language? Do you have a first languarge?

Western's picture

It was actually pretty funny, encased in such a crystalline sarcasm it was nearly invisible.

disabledvet's picture

John Law did such a great job for Loius. Once more unto the breech!

Frog-And-Toad's picture

What's the best hedge against this (paper version)?


I am heavily invested in physical silver, but wouldn't mind gathering up some fiatcos in the process to add to my silver collection.

lookma's picture

What's the best hedge against this (paper version)?

See the first asset listed on the ECB's balance sheet?  Go look above at the first image.  Do you see it: GOLD!  Not silver.  Not paper hedges.

Seriously, this is not hard.  The ECB "prints money," but oh look, the most important asset on the Eurosystaem's balance sheet is now more valuable too - Euro gold is marked it to market quarterly.

EB's picture

Freegold does nothing to quell the adverse effects on businesses of massive monetary base manipulation over the short to intermediate terms.  It simply preserves savers to an extent.  However, the manipulation hurts productivity as businesses must adapt to large fluctuations in available credit.  Thus, the potential standard of living for all is lowered.  Thus, Freegold is not a panacea.

IQ 145's picture

Another person who doesn't know what they're talking about, a.) and b.) doesn't think logically. Congratulations you make a perfect blog contributor!

EB's picture

Feel free to point out the errors in logic.

LawsofPhysics's picture

Again, if the EURO is marked to gold quarterly and they are printing more EURO, why is the purchasing power increasing relative to the dollar.  Especially since we all know dollars are being lent and printed to backstop the EURO banks?  Big contradictions here, plus the dollar is backed by one governement with a single, rather powerful, army.  This is not the case for the EURO.  Exactly what are you saying?  Looks to me like both dollar and EUROs will become some new world currency that will continue to be devalued against gold.

Everything points to holding physical gold as a good thing, regardless of the paper you use to purchase it.

Frog-And-Toad's picture

So you're saying that this sparkely metal is worth something?!? 

I thought it was just the stuff of pirates and conquistadors...

So, if I invest in this metal, can I eat it?

Paralympic Equity's picture

Long bank CDS, but sell them before the "event" because there will never be any event...

Or wait for 26th AUG, and short the banks from idiotic levels (courtesy of the no volume melt up)

falak pema's picture

Trichet is a "tricheur" Wow!