Draghi Is "Desperate To Avoid A Japan-Style Lost Decade"

Tyler Durden's picture


As we noted previously, it is likely that whatever Draghi does this week "will not deliver a significant impulse to the real economy" in Europe but while negative rates are almost guaranteed (based on the consensus), reviving the ABS market (via focused QE) is being heralded by many as a positive swing factor. Unfortunately, as SocGen explains, even if the ECB began purchasing ABS in H2 2014, the size and reach of the market is not enough to move the scale as Europe acts desperately to avoid a Japanese-style lost decade.


Via SocGen,

ABS for dummies or what the ECB could do...

ECB to act to help peripheral SMEs

“What we need to be particularly watchful for at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries” warned ECB president last week. Real rates remain too high compared to GDP in peripheral countries and the strength of the euro is reinforcing disinflationary pressures.

With ongoing concern on SME financing in the periphery, we expect the ECB to take unconventional measures at the 5 June meeting to boost SME lending. Action could take the form of a targeted LTRO (similar to the Bank of England’s Funding for Lending  cheme) and/or an ABS* repurchase programme. *ABS: A financial instrument collateralised by one or more types of assets, including real estate, mortgages, receivables etc.

Reviving the ABS market

ABS issuance has been subdued in recent years for economic reasons (weak demand) but also due to technical obstacles, (including the deemed unfavourable regulatory treatment applicable to the ABS market).

For now, we expect that the ECB could start purchasing ABS in H2 14 (either in the market or directly from banks) to revive the ABS market. As the size of the ABS market linked to SME loans is small (c. €120bn in Europe) any asset purchase programme is likely to include other types of ABS to have more impact on the economy. But, according to SG ABS & Covered bonds analysts, ECB-eligible ABS outstandings amount to just €760bn (Q1 14). Therefore purchases could be further extended to other assets, such as supranational agency bonds, or corporate paper.

ECB is acting to avoid a Japanese-style lost decade
Successful reform of the ABS market could help improve credit conditions in the periphery and break the vicious circle between banks and sovereigns. Initiatives from different European institutions are under investigation (the EIB, the European Commission, the ECB, etc.) but reforming the securitisation market will take several years. Banking Union will also help reduce fragmentation in the future. But, for now, deflation risks are increasing, and the ECB could well fall ‘behind the curve’ if it does not take sufficient action. Any significant downward revision of inflation expectations would require a broader based QE programme (over €1 trillion in asset purchases, including sovereign assets).

The goal is clearly to avoid a Japanese style lost decade... because QE worked out so well for Japan?!

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Mon, 06/02/2014 - 22:39 | 4818947 donpaulo
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There is always prayer

Mon, 06/02/2014 - 22:48 | 4818976 Catflappo
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When I went to school "decade" meant ten years, but we seem to be bandying around a new definition now?

Either that or my calculator has sprung a fault as it would no longer seem to be able to figure out an accurate answer to "2014 - 1995"

Mon, 06/02/2014 - 22:58 | 4818994 Dr. Engali
Dr. Engali's picture

Common core math. It's the new math, you just say what feels right.

Mon, 06/02/2014 - 23:08 | 4819023 infinity8
infinity8's picture

Yeah, 'cause maath is just boring, Yo. BOoooooooo-ring!



Mon, 06/02/2014 - 23:09 | 4819031 infinity8
infinity8's picture

And Haardd! Really fucking boring and hard! Fuckoff, I'm gonna cheat!

Tue, 06/03/2014 - 08:42 | 4819702 RaceToTheBottom
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No downside to cheating when everyone gets a ribbon.

Actually, perfect training for a CEO position

Tue, 06/03/2014 - 04:31 | 4819471 RadioactiveRant
RadioactiveRant's picture

Try rounding down, not up. Then you get the "right" answer.

Tue, 06/03/2014 - 07:47 | 4819609 DeadFred
DeadFred's picture

You're forgetting the all-important seasonal adjustments.

Mon, 06/02/2014 - 23:03 | 4819013 Stuck on Zero
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Draghi is not desperate to avoid a lost decade.  Japan's lost decade meant trillions of dollars in the pockets of the Japanese bankers.  Same in Europe.  "Lost decade" is only lost to the middle class it is a boon to the illuminati.


Tue, 06/03/2014 - 04:17 | 4819457 DavidC
DavidC's picture

Stuck on Zero,

"Europe acts desperately to avoid a Japanese-style lost decade" - with the DAX at least at all time highs. Forgive my language, but Draghi et al are fucking pathetic.


Tue, 06/03/2014 - 00:47 | 4819250 SAT 800
SAT 800's picture

"---purchasing ABS,---but market not large enough---"; Well, I dunno, but there's an awful huge pile of Atrophied Bull Shit in Europe. Seems like enough to me.

Tue, 06/03/2014 - 06:38 | 4819544 doctor10
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If the world's bankers continue to expect the world's people to serve them, as opposed to providing a service to enable business and trade, get used to the concept of "lost centuries" -as in the Dark Ages.

Its pretty clear the world oligarchy intends to use finacialization of existence as a form of "neo-feudalism"

Tue, 06/03/2014 - 06:43 | 4819548 SunRise
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Prayer - Error prevention when offered first - Coupe De Grace when offered last.

Mon, 06/02/2014 - 22:40 | 4818953 kliguy38
kliguy38's picture

More like 3 lost decades now

Mon, 06/02/2014 - 23:29 | 4819083 babylon15
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Japan's population in 100 years will be the same as Japan's population in 1872.




More like a lost century.

Mon, 06/02/2014 - 23:53 | 4819133 Flakmeister
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More like ahead of the curve all of humanity is going to follow this century...

Overshoot is a bitch, the economic stuff at the beginning is the easy part...

Mon, 06/02/2014 - 22:44 | 4818970 NoDebt
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People who don't have any money and don't have income don't borrow, no matter how low the interest rate.  People who DO have money stop spending it when interest rates get down 'round zero.  

Mon, 06/02/2014 - 22:49 | 4818981 Dr. Engali
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I can not be convinced that they are trying to avoid Japan 3.0 ( the U.S. Is 2.0) rather than just protect the status quo. If they wanted to "fix" things they would liquidate the debt and allow some institutions to die. Instead they are choosing to do moar of the same while impoverishing millions of people.

Mon, 06/02/2014 - 22:58 | 4819002 NoDebt
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That's been my premise for a long time, as I know you already know.  A Japan scenario is the only one that avoids immediate, intense pain for many sacred-cow constituencies.  It's the only path that is tenable in the current political environment that exists to a greater or lesser extent basically everywhere in the developed world.

Japan pulled it off for DECADES, running up a debt/GDP ratio of 250% (increasing almost 1% per month!) without even having the "world's reserve currency".  How long do you think the US can pull it off?  Probably at least that long, if not longer.

We keep thinking that someday the world will turn away from central bank dependency, but it won't.  It's welfare for the well-to-do.  Everyone hates it just a little less than the alternative.

Mon, 06/02/2014 - 23:09 | 4819019 Dr. Engali
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Being the world's reserve currency is exactly the reason I don't believe we can keep it up for as long as Japan. Whereas Japan's major impact is on it's own citizens our policies impact the world. Sooner or later the world is going to say enough.in my opinion we are in the latter stages of our currency rejection.

Mon, 06/02/2014 - 23:11 | 4819037 NoDebt
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We suck, everyone else sucks worse.  2 decades, minimum.  

Mon, 06/02/2014 - 23:46 | 4819120 Anusocracy
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We suck period.

At virtually every level the US is doing the wrong thing and the future is not going to smile on us.

Tue, 06/03/2014 - 07:36 | 4819590 Greenskeeper_Carl
Greenskeeper_Carl's picture

"Two decades minimum" holy shit, never figured you for an optimist ....
But in all seriousness, I agree with your premise. I think two decades is a but long, but who the hell knows. I agree it will be a slow, steady decline. The key to keeping the frogs in the pot is slowly turning up the heat. Can't just throw them into a boil

Mon, 06/02/2014 - 23:13 | 4819046 disabledvet
disabledvet's picture

See below and "cue Mario Draghi desperate face" instead of charts and graphs.

These clowns could care less about "Europe."

Just "cut the friggin check."

Ironic because Ukraine really does want to be part of Europe. "Worth plunging the entire world into a World War over?"

Stay tuned...

Mon, 06/02/2014 - 23:42 | 4819108 Anusocracy
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Part of Ukraine wants to be part of Europe. Good luck with that.

Let Eastern Ukraine be free to go its own way - like what happened in Czechoslovakia.

Mon, 06/02/2014 - 23:56 | 4819139 disabledvet
disabledvet's picture

2500 years of history tells me "it's never worked that way ever." We can hope "it's different this time."

We saw how that worked with Wall Street though.

Tue, 06/03/2014 - 00:47 | 4819253 hairball48
hairball48's picture

I'm in your camp. One day the world will finally lose faith in the U$D and they'll say, "Fuck Amerika."

The U$D will crash and all hell will break loose in society.


Tue, 06/03/2014 - 02:01 | 4819355 disabledvet
disabledvet's picture

America got gas piped. The irony of course is that the USA still has the cheapest natural gas in the Western and developing world by far.

How that gold price is still falling is beyond me tho. "It's not for lack of earnings and cash flow."

Again...this sounds crazy..."but we've enslaved these Martian dudes...and they..."

Oh, wait...that is crazy.

Tue, 06/03/2014 - 06:12 | 4819525 El_Duderino
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The ONLY reason the US can get away with the current debt burden is due to the $ being THE reserve currency. When it ends, and it wil sooner rather than later, the $ is toast and banckruptcy becons.

Mon, 06/02/2014 - 23:12 | 4819041 Crawdaddy
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If there were ever a real group of independent people called "bond vigilantes" as I was raised to beleive, then Japan(and the US/EU/ the world) would be buried in insolvencey. The visible insolvency of US/EU is just another news story manipulated by people who own the news guys.. House of freaking cards propppd up by a bunch of corrupt munchkin mofos

Mon, 06/02/2014 - 23:16 | 4819056 Caviar Emptor
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Yes.  It's been my premise as well, only Japan (comapred with the US) is a nirvana of political harmony and indolence compared with US. 

Mon, 06/02/2014 - 22:56 | 4818992 dirtyfiles
dirtyfiles's picture

remember Draghi is part of the Goldman system why bother ..



still after 6 yrs nobody goes to jail yet

nothing is fix

more of the same

Mon, 06/02/2014 - 23:00 | 4819006 Caviar Emptor
Caviar Emptor's picture

I cringe everytime I hear that a bank may get fined or a golfer gets investigated for insider trading. Aren't all rich, connected people "insiders"? Is it insider trading if Rockefellers swap wives and polo ponies with Fords? What's left of the privilege of class, the gentleman's C? 

Mon, 06/02/2014 - 22:56 | 4818993 Caviar Emptor
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Hehe lost decade :) We are in the 2nd inning of the lost decade

Mon, 06/02/2014 - 22:58 | 4818998 SofaPapa
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There is a choice to be made.  EITHER the current power structure can maintain their power and influence OR the system can be reset to allow for even rule application and responsiveness to a broader cross-section of society.

Only by following the second course can TPTB avoid the lost decade or more ahead.

TPTB will follow the first course, because their arrogance and hubris will not allow them to believe the world could function without their "leadership".

So we face one of two most likely futures at this point: growth of crushing authoritarian mechanisms while they try to figure out how to "manage" growth (which is an oxymoron) or violence as people throw off this claim to control over their lives.  Neither is pretty, and to repeat, both are the direct cause of the inability of the "elite" to realize that the world will grow and function best with the least control.  The more they try to control it, the worse it will get.  So simple, but they are inherently incapable of seeing this because of their ingrained push-to-power mindset.

Sad, really.

Mon, 06/02/2014 - 23:16 | 4819053 NoDebt
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Decision's already been made.  Authoritarianism, central planning and endless money printing won by a landslide.  

There will be no revolt.  Too much government cheese for that to happen in any developed nation.  Like LBJ said "just enough to quiet them down, not enough to make a difference."

Tue, 06/03/2014 - 04:04 | 4819450 chinoslims
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With 70% obesity and distracting television, sports and celebrity gossip to consume who physically can or have the correct mindset to revolt.  Revolution.  Aint got time for that.  when is Americas got talent?  When is the next super hero movie coming out

Mon, 06/02/2014 - 22:58 | 4818999 babylon15
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Hey, that's good news, because there's a solution.  Default on all the debt.  Presto, no lost decade.

Mon, 06/02/2014 - 23:19 | 4819063 disabledvet
disabledvet's picture

That's what the inflation is dude.

"Your Government defaulting on trillions in debt."
Cue "Spock saves Enterprise scene."

Mon, 06/02/2014 - 23:06 | 4819020 sbenard
sbenard's picture

Draghi is so "desperate to avoid a Japan-style lost decade", that he will do the SAME thing as Japan to avoid it!

Mon, 06/02/2014 - 23:06 | 4819021 Sticky Wicket
Sticky Wicket's picture

QE works! Just look how rapidly the US economy is growing.

Mon, 06/02/2014 - 23:15 | 4819049 Bunga Bunga
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Fuck you Draghi!

Mon, 06/02/2014 - 23:15 | 4819051 AccreditedEYE
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I bet that whatever he decides to do stocks still move higher. Can't lose.

Mon, 06/02/2014 - 23:27 | 4819077 Spungo
Spungo's picture

If they're trying to avoid Japan style stagnation, why are the US and EU doing exactly what Japan did? Lowered interest rates, did QE, didn't jail anyone, bailed out oligarchs, etc.

These stupid fucks still haven't figured out that prosperity is the normal human condition. Humans work. Humans trade. Humans have fun when there's time. We could do all of these things if the government would fuck off and leave us alone. Lots of stoners out there could be growing and selling weed right now. They're not allowed. Lots of Americans would love to gamble. They're not allowed. Lots of women (and men) would gladly be hookers to pay the bills. They're not allowed. Why do they make it so hard to run a business? If I started breeding cats in my home and selling them, some government fuckbag would probably arrest me for not having some stupid license.

Mon, 06/02/2014 - 23:55 | 4819138 Flakmeister
Flakmeister's picture

You write as if there was a way of reversing it...

That ain't possible...

Tue, 06/03/2014 - 01:43 | 4819330 DaveA
DaveA's picture

Dude, stoners grow and sell weed *because* it's illegal. When it's legal, it'll be just another Big Agro commodity like corn, soybeans, and tobacco. The best bud will wholesale for a few dollars a pound, and all the small growers and dealers will be wiped out.

Most of our laws against prostitution, gambling, drinking, and drugs date back to the 1910s, when women started voting. Women think we should pass laws to make the world a better place, while men, who are almost entirely tasked with enforcing those laws, have more realistic ideas about what can be accomplished by coercion.

Tue, 06/03/2014 - 05:57 | 4819512 CuttingEdge
CuttingEdge's picture

Could be wrong here, but I do recall the UK drug laws were as a result of direct lobbying to the government by the breweries (around the decade you say), who saw narcotics as a competitive threat.

Tue, 06/03/2014 - 00:02 | 4819153 Radical Marijuana
Radical Marijuana's picture
"Desperate To Avoid A Lost Decade"


Tue, 06/03/2014 - 00:10 | 4819181 walküre
walküre's picture

If Draghi is serious about confiscation via negative rates then all hell might break lose when billions of cash get flushed into the system trying to buy anything of value. European and global indexes could shoot potentially much higher to avoid being penalized for holding cash. Real estate will see a big push in the periphery because the middle is already priced sky high.

Draghi's plan is to get Europeans off their couches and spend, spend, spend until they're not being penalized for hoarding cash.

Now, Europeans are a bit more sophisticated when it comes to spending. They don't necessarily go out and consume more. Gold and silver are extremely popular there. Just sayin'

Tue, 06/03/2014 - 00:10 | 4819182 malek
malek's picture

 avoid a Japanese-style lost decade

I thought they (ECB) are the ones creating the environment that almost guarantees one for Europe?

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