On Draghi's 'Real-World' Incompetence

Tyler Durden's picture

While the world and their cat believes that Mario Draghi saved the world last year - and continues to do so with his open-ended promise to do "whatever it takes" whatever that means (and the market's "positive contagion"). However, the reality, away from a sovereign-bond implied view of the world - with short-dated Spanish bonds now at 26-month low yields (whereby these bonds are sucked up wholesale by an ever more concentrated and self-satisfying group of European banks) is far different. As these two charts show, not only does Draghi's decision not to lower rates (when inflation and unemployment - both more 'real-world economy'-impacting items) indicate Taylor-Rule-esque that rates need cutting; but while banks get all they want (and more) from his over-flowing cup or collateralization and repo, credit extension in Europe continues to slide ever more negatively. Yes, Draghi saved the banks (for now) but, just as the scariest chart shows, Europe is very far from saved; and for those looking at TARGET-2 imbalances, the risk remains, it has merely shifted to the core.


While the ECB continues to 'ease' via over-paying for crappy collateral to banks, unemployment and inflation point to more is needed (but of course the transmission mechanism is broke! as it is in every developed economy full of Zombie banks)...


Which means real-world credit (the life-blood of the Keynesian economy) continues to slide; due to demand - balance sheet recession; and lack of supply - easier risks elsewhere - and note the bank loan default rate we pointed to earlier...


Charts: Bloomberg Briefs

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Ruffcut's picture

Only playing stupid in full denialism mode.

Lies always sound stupid to one who knows better.

Ghordius's picture

the Taylor Rule is one of those "we need an elastic currency" rules that should not be taken as gospel - particularly when in the "unicorn area" below 3%

(btw, the graphs are great, thanks)

and of course households are deleveraging - this isn't a bad sign per se

the "loans to non-financial corporations" matter is even more complex. Tyler, you know that we have much, much more direct loans to companies than the US and UK, instead of corporate bonds and stocks, that's the main difference between continental european economies and the AngloAmerican ones - and also the reason for the higher leverage of the banks, the bigger role of the bank deposits, the greater risk of inflation, etc. etc.

I hope you are not going to argue that this critical part of our financial setup is being neglected

sgorem's picture

is minus zero a feasible rate? seriously.

Lohn Jocke's picture

Ben Bernanke can divide by zero, slam a revolving door, and make money

Cognitive Dissonance's picture

The spread between reality and spoken fiction is growing wider every day.

<Time to make the donuts.>

BooMushroom's picture

The USD seems weak backed by the full faith and credit of the United States.

The EUR is backed by the full faith of Mario Draghi...

From Germany With Love's picture

Even if Spain and Italy was to request an OMT program, he could never live up to his promise as Germany would be in arms about it unless Germany was going through a cyclical boom at the time. It's not the ECB's mandate to save the Euro. That is the politician's job. Of course they want to hide the costs of the crisis through money-printing instead of debating it openly in the Bundestag.

gould&#039;s fisker's picture

Great point--but surprised this isn't more common perspective by now.  Draghi is Bagdhad Bob (of "there's no US forces in Bagdhad" fame) and just one of the propped up covers for Merkel--the Germans are coming to the realization that their Euro ball and chain can't be Grexited gracefully, but a full airing of the putrid Euro fumes is still too much for their legislature to stomach.

Dareconomics's picture

Cheap money is papering over the Eurozone's problems. Workers are hurt by the ongong recession, but the banks are making profits and the governments are financing themselves at record low rates due to the ECB's policies:


inevitablecollapse's picture

NIRP / ZIRP for everyone! hooray???

q99x2's picture

Draghi is a bankster. Draghi is repairing the result of Bankster fraud. Something doesn't seem right.

From Germany With Love's picture

In other news:

NPL in Italy reach 7.09%, highest since May 2000:

Looking good, looking strong...


NEOSERF's picture

One does get the sense that these charts indicate perhaps a climate change in worldwide demand.  The 2005-7 last gasp of baby boomers to buy the big house, car and trip to Malta are now done.  They can't afford to be tricked again and so these numbers decline on their way to some sort of millenial stability level in demand which will be far lower than the past based on what this young generation has just watched.

pasmurf's picture

Draghi,"Things will improve later in 2013." Those VATs, tax rate rises, and his promise to do whatever is necessary, well, in spite of a few self immolations, and the stock market and Euro are on fire, pardon the syntax. Bears don't stand a chance yet.

youngman's picture

California just erased their 24 billion dollar budget deficit today somehow???????  The Gov just showed his new budget...and its gone....zero...WTF?????

And someone bought the Spanish bonds today with the new wording.....?????

zrussell's picture

It had something to do with a PROSTRATE...

nastaking's picture

Think Feiteng GT-H7100 Android 4.1 are getting ridiculously big? You best look away now.