Europe's Quantitative Easing

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,

Most people do not think that Europe engages in Quantitative Easing. They know that the United States engages in it, that Britain engages in it and now that Japan engages in it but they think that Europe has so far refused to be involved. They think this because this is what they have been told. Unfortunately this is inaccurate.
The European Quantitative Easing takes place every day just not in the manner utilized by America and others. However, it takes place all the same and it is done in a manner to circumvent the rules of the European Union. This is also why the ECB has such a massive balance sheet.
What Europe has done is gotten around their own regulations which forbid the ECB from lending money directly to nations. This is supposed to be handled by the ESM and approved by the various parliaments. Since this is either politically impossible in some countries or politically a nightmare in others the ECB has concocted a scheme to bypass the political rules with all of Europe’s politicians blinking and nodding in silent agreement.
In Spain, as one example, the ECB lent the banks $172 billion. This was done by the country of Spain guaranteeing the debt of the banks and various bank securitizations and then the bank debt and the bank securitizations were pledged to the ECB who handed them back the cash. The money, in large part, has been used to buy the debt of Spain which, in fact, hands the sovereign back the cash. A good trick, an interesting ruse which is the major reason, perhaps the only reason, why the yield of Spain’s debt has declined.
In Greece, as another example, the same game has gone on. Not only does the EU not count contingent liabilities as part of a country’s debt to GDP ratio, where Greece has guaranteed the debt of their banks, but no inclusion is made of the money handed to the sovereign as a result of assets pledged at the ECB and funneled back to the sovereign nation. One more good trick!
Another ploy is what has happened in Belgium and various other countries.  Dexia got into trouble and Belgium, France and Luxembourg had to step up and lend the bank money. However it was not called a loan or termed a loan and was marked on their balance sheet as an “investment” so it actually increased the assets of the various countries as any proper categorization, a “loan,” would have raised their debt to GDP ratios. Magic abounds in Europe.
In fact all over Europe, in almost all of the countries, the ECB has accepted bank debt and corporate debt guaranteed by some nation and handed back cash to the banks that can either loan money to the sovereign or buy their debt in the open market when auctioned.
There is much ballyhoo that sovereign yields have gone lower because of the better economics in Europe. Europe is in a major recession. Even an idiot savant would not take this notion at face value and yet that is what is contended. The truth is that yields have gone lower because the ECB hands the banks money which is utilized to force them lower. The banks are just a conduit in this scheme; nothing more.
Now the ECB holds about 80% of their assets at face value declaring them “risk free.” This is another part of the farce because the banks get the money at the “risk free” rate of 100% of the loan or securitization. These securitizations include mortgages, commercial loans, construction loans, gyro stands in Athens and only God and perhaps Mr. Draghi and his band of merry men knowing what else is in them.
Make no mistake; Europe is fully engaged in Quantitative Easing.
There are rumors, snippets in the wind, that one or more of the French banks has gotten into trouble. Each time, perhaps, loans were securitized and handed to the ECB which handed cash bank to the bank or banks. It is impossible to know but with a banking system four times the size of the GDP of the nation it would not surprise me to find that certain items had been incorrectly categorized if not covered up.
Then let’s play out this scheme to its logical conclusion. The loans in the securitization do not pay. Bankrupt companies, Real Estate that has gone south, construction that has stopped and there is no ability to pay from the primary sources. Then what? More securitizations pledged, more cash handed out to the banks and new loans pay old loans and the scheme continues. The singular hope here is for growth and when none commences very bad things could happen.
‘Tis but a mid-summers night’s dream
Crafted by some clever bard
A pleasant slumber upon a balmy day
Pray tell what happens when the dreamer awakens?

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Stuck on Zero's picture

This just in: Christine lagarde in court facing charges of fraud and embezzlement:


knukles's picture

All sorts of Hide the Sausages goings on!

mkkby's picture

The popcorn and beer are getting stale from the long wait... but it's gonna be one helluva show when this pozi unwinds.  I hope we all live long enough to enjoy it.  How does it ever end when everyone's playing the same game and there's no safe haven?

Acet's picture

You mean the EURO-Zone central bankers are just as devious, machiavelic and deceitfull as all others!???

I'm trully shocked!

Ghordius's picture

don't forget the deviousness, machiavellianism and deceitfulness of setting up the ECB in the first place 'cause it could be handy in an eventual currency war

or uttering the "whatever it takes" words. or setting up OMT as a mafia-like "advice" to the poor, poor hedgefunds desperately looking for "something to short"

holdbuysell's picture

This is similar to keeping a patient on life support to sustain breathing and heart activity even though all brain activity has ceased.

LawsofPhysics's picture

Paper fucking promises and counterfeit claims on all kinds of shit.  When fraud is the status quo, one simple rule applies; possession is the law.

DosZap's picture

Most people do not think that Europe engages in Quantitative Easing.


Why would they after Benny n the jets sends 1 T?.

LawsofPhysics's picture

"Most people do not think..."  stop right there, no need for further comment.

Dr. Engali's picture

The whole financial world is one big game of three card monte. Shuffle the bad debt around and distract the players. 

Yen Cross's picture

     Lets not forget all the $ the Fed. hands the U.S. arms of European banks to play their little ponzi scheme.

disabledvet's picture

Nein. Wall Street will lend...but not the Federal Government. Ms. LaGarde went to Japan...looking for something that she discovered very quickly could never be there. EVER. this information was passed on to here "superiors" in that Palace thingy they got over there. this was disheartening. have to ask "Europe had a template"...but now post Japan "does the USA have a template as well." given the coverage and the New York City media fear of even a word being typed ever i would argue "absolutely yes." conspriracies of silence are pretty obvious over here. having the ability to "see the follow through" however...well, let's just say "that's part of the new, new thing."

Craxi's picture

Come again, Herr Disabledvet?

asteroids's picture

"neither a borrower nor a lender be"  The ECB will learn that lesson too.

zipit's picture

Tomorrow, and tomorrow, and tomorrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury
Signifying nothing.

Monedas's picture

I loaned my beach bum Dr. neighbor $200 pesos so he could take the bus to San Diego .... he left me the pink slip to his Jensen sailboat .... I really wanted his bicycle as collateral .... he said he takes that with him on the bus .... now I'm worried if he's coming back ?  

Bearwagon's picture

Get your gold and silver aboard and set sail at sunrise! ;-)

LawsofPhysics's picture

My thoughts exactly.  Such a sailboat will find many bidders in Mexico.  Myself included, depending on size.

benbushiii's picture

There is another twist to this game.  The FED announced in late 2012 they were buying mortgage backed securities, but convienently did not mention what countrys'.  If one analyzes the FED's balance sheets alot of dollars have been printed, converted to EUROS and used to buy Euro area debt.  The European Banks are essentially short the dollar.

LawsofPhysics's picture

No shit sherlock, many American companies (and Banks) also book profits in Euros and then play all kinds of tax games to avoid taxes in the E.Z. and America.  I would postulate that the West, is in fact, the single largest tax haven for corporations.  Wealthy individuals still have their island havens. The middle class sits in the middle headlong towards extinction...

Ghordius's picture

this is a theory that goes back to when the FED and the ECB engaged in a huge trillon-heavy FX swap

meanwhile the swap went back to a couple of dozen billions (i.e. small change)

btw, the whole point of having the so-called exorbitant privilege is of not having to accumulate Foreign-Exchange Reserves like everybody else's cbs

now, if the USD keeps being the global reserve currency forever, then of course there is no point at all for having them at all

but if the USD is ever going too fast down because this status crumbles, then they would be badly needed

(then the US would need way more than the paltry 146 USD billion reported for March 2013)

the twist you allude to is about banking systems - and there my question: we do have national banking systems - but what about the transnational banking system of the megabanks? imho it's them getting regularly into huge EURUSD positions, and it was them needing badly the whole manouver that the two cbs made then

Bearwagon's picture

No, it won't. First big pullback is estimated at 8075/8150, possibly 7865 at most. Be careful, be very careful ...

GVB's picture

I'm not sure if the info with regard to Dexia Belgium is correct. Please correct me if I'm wrong, but then, what does below quote mean?



The federal government could be faced with a fine of up to €800 million from the European Union, after a decision last week by Eurostat that the government’s share in a recapitalisation of the remaining part of Dexia Bank has to be included in the 2012 budget as spending and not as an investment.

The Belgian and French governments agreed last November to pump €5.5 billion into Dexia, with €2.9 billion of it coming from Belgium. The government defended this sum as an investment, which led to it being included in the national debt. Eurostat now says it must be considered a capital transfer and included in last year’s budget.

The result is that Belgium’s budget deficit immediately grows from the 2.8% of GDP agreed with the EU to 3.7%. That leaves the country open to a fine that could be as high as €800 million.

According to new finance minister Koen Geens, “this accounting correction of the 2012 deficit will not influence the 2013 budget and will not impose on us any additional efforts.” However, it does leave the government with fewer options in its search for savings in an effort to reduce the deficit to 2.15%.


put_peter's picture

Message to CB:s: Just put a bid on every single material, immaterial or other form of asset on earth. If this is not enough to get the 'wealth effect' then extend the program to assets on other planets and sun system.

CVfriendship's picture

US has QE, UK has QE.....Europe has cash for clunkers. It's a term everyone can understand.

Sean7k's picture

There is a very exhausting explanation for all of this:

One, the vast majority of all debt is held by governments or their proxies and it is "guaranteed" through taxation. 

Two, the size of entitlements and public sector employment creates the faith necessary to "promote" the values in the system.

Three, the people with the debt, create the currency.

Four, with the globalization of labor, people are happy to just have a job, and who wants their wages to fall?

Five, Poor economies see the influx of jobs as an increase in per capita wealth and create new consumption.

Six, the production of many goods require less expensive materials (think tech), which absorbs liquidity with false values.

Seven, If there is a default, it is declared a non-default, absolving the system.

Eight, people lack the knowledge to contest the propaganda.

Nine, The complexity of the system is beyond one persons ability to grasp.

Ten, with consternation and confusion, we choose simple explanations and simple lifestyles to remove conflict and our lack of security.

Eleven, the takeover by service industries skews real values and makes pricing "relative". 

Twelve, without a solid base to judge value, with money expressed in unrealistic values, the human chooses to shutdown, withdraw and seek safety. Welcome to slavery.

Yancey Ward's picture

Like any good sodomizer, the ECB gives good reach-around.

NEOSERF's picture

Per your article yesterday, it appears they have gotten around it through the Fed supporting foreign banks for're welcome EU.

Downtoolong's picture

What Europe has done is gotten around their own regulations which forbid the ECB from lending money directly to nations.

No doubt Goldman or some other investment bank advised them of the scheme, because, as Lloyd Blankfein clearly and publically admitted recently, “This is what I do.”


Fuku Ben's picture

And how much did the FED actually provide to EU Banks? Not just the amounts disclosed in the partial audit

Volaille de Bresse's picture

"There are rumors, snippets in the wind, that one or more of the French banks has gotten into trouble"


Yeah SocGen is dead but shhhh....

robnume's picture

"Most people do not think...". Period.

sbenard's picture

Europe is simply spreading the risk up the food chain. When it reaches the top, tyranny and calamity will be the result!

NaiLib's picture

Cyprus was the Bear Stearns Moment of Europe. Just wait and follow what will happen. Time has to do its work