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Draghi's Action Plan Cheat Sheet: "Not Many Options Left"

Tyler Durden's picture




 

Between Eurostat's lengthy forecasts, the press release, and Draghi's droning on... it's easy to get lost in what was delivered, what was promised, and what it means... here is the ultimate ECb announcement cheat sheet. Simply put, Draghi does not have many options left.

 

Source: @MxSba

 

Think QE is coming anytime soon? Think again, says Morgan Stanley...

ECB may prefer to cut policy rates a little further instead of embarking on a QE program, Elga Bartsch, economist at Morgan Stanley, says in client note.

 

ECB isn’t ready yet to deploy balance sheet; hurdle to QE remains high

 

ECB sees balanced risks to CPI outlook and downside risks to growth; EUR played a less prominent role compared to last month

And here's why QE is such an issue - as we noted previously...

December 2011 - ECB Press Conference

 

Question: Why is it so impossible for the ECB to act like the other central banks, like the Federal Reserve System or the Bank of England? Why do you not act more directly to help European countries by buying up the debt on a massive scale?

 

Draghi: As I said before, we have a Treaty and the Treaty states what our primary mandate is, namely to maintain price stability. Also, the Treaty prohibits monetary financing. I am old enough to remember that, when this Treaty was written in the early 1990s, some of the countries around that table were actually doing what you suggest doing now, namely some of the central banks of these countries were financing the government expenditure of their governments through money creation, and the consequences were there for all of us to see. That is why, in a sense, this Treaty embodies the best tradition of the Deutsche Bundesbank, whereby monetary financing has always been prohibited.

 

Question: Mr Draghi, speaking in Parliament you also emphasized that the ECB would ensure price stability in both directions. Does that mean that there is a fear of deflation? My second question is, from a purely legal point of view, do you think there is any limitation on the ECB regarding the amount of government bonds that can be bought, as long as it can be justified on the basis of monetary policy considerations.

 

Draghi: At the present time we do not see a high probability of deflation. That is one point to keep in mind. The second point is, as I have said many times, that the purpose of the SMP is to reactivate the transmission channels of monetary policy. As I said in the statement to the European Parliament, the SMP is neither eternal nor infinite. We must keep this in mind and we do not want to circumvent Article 123 of the Treaty, which prohibits the monetary financing of governments.

 

And secondly, you have mentioned Article 123 in the Treaty. Would you consider active buying at around the time certain instruments are issued to be something that would be state financing, and would you regard that as being against ECB law?

 

Draghi: On the first issue, we are aware of the technical complexities that would arise with the SMP having an infinite size, but we will think about this. As for the other question, one can construct many different cases. But, as I said before, the key thing is that we should not try to circumvent the spirit of the Treaty. No matter what the legal trick is, I think what matters for the people and what matters for the confidence and credibility of the institution is the spirit of this provision of the Treaty.

 

2/9/12 - ECB Press Conference

 

Question: I also had a question on the EFSF. If the ECB were to transfer the bonds it has acquired under the SMP to the EFSF, would that be monetary financing?

 

Draghi: The EFSF is like a government. Giving money to governments is monetary financing.

It would appear that Draghi may have some trouble explaining that...

 

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Thu, 06/05/2014 - 12:32 | 4827137 Say What Again
Say What Again's picture

Treaty? 

I don't see no shtinkin Treaty.

I do what I want to do

I am Draghi!

Thu, 06/05/2014 - 12:43 | 4827173 TBT or not TBT
TBT or not TBT's picture

One option is defaults and devaluations and floating currencies and failing governments. This would be Europe acting like Europe traditionally does. Solid, "core" country France is on its Vth Republic and is fading fast. Spain was a dictatorship like 40 years ago. Ditto Greece. Italy has not seen the end of political instability. Here's to Germany NOT reverting to form, for its part.

Thu, 06/05/2014 - 13:15 | 4827283 Headbanger
Headbanger's picture

What I said here earlier that the ECB has reached the end of their rope.

And these fucking idiots just kept doing the same thing over and over again expecting a different result.

 

Thu, 06/05/2014 - 13:43 | 4827383 JRobby
JRobby's picture

Debtaholics

 

 

Thu, 06/05/2014 - 13:57 | 4827409 zaphod
zaphod's picture

The German people will never willingly accept QE. They tried that too recently and remember what happened. 

Thu, 06/05/2014 - 14:32 | 4827548 TBT or not TBT
TBT or not TBT's picture

Non German people say things like that about the German people quite a lot. But the German people themselves are pretty convinced and comfortable with socialized everything and central planning, just like the once beloved national socialists did.

Thu, 06/05/2014 - 14:23 | 4827520 TBT or not TBT
TBT or not TBT's picture

Sociopaths enjoying the spoils and perks that central planning regimes reliably provide, to a few, for a while.

Thu, 06/05/2014 - 14:31 | 4827541 ThirdWorldNut
ThirdWorldNut's picture

"we have reached lower bound for all practical purposes" BUT "we are not finished yet!"

i.e. I'm gonna dig a hole till I reach China and then dig some more and that, plebs, will be the lower bound. Do you understand me, do you?

 

Thu, 06/05/2014 - 12:46 | 4827185 Sudden Debt
Sudden Debt's picture

and the dollar is proof that QE doesn't create the risk of hgh inflation to which Draghi is refering from the 90's.
SMOOTH SAILING BOYS!!

Thu, 06/05/2014 - 14:22 | 4827517 Carpenter1
Carpenter1's picture

This is all about a global rebalancing of power. EU will become much more powerful than it is, the US will lose significant power, China will gain enormous power.

Therefore the EU must remove the inefficiencies(not corrupt bankers though of course), and become more profitable for business, big business. Meanwhile the US is being ratcheted down little by little.

Once all the pieces are in place and the vampires feel they can pull the plug, they will announce the currency reset. China has its gold, the EU always did, as the US does as well as Russia.

But of course, grand schemes like this are littered with potential black swans and are just as likely to kick off a worldwide panic, thus we have Homeland Security to deal with all the "would be" new leaders arising in the chaos.

Thu, 06/05/2014 - 14:50 | 4827602 TBT or not TBT
TBT or not TBT's picture

Wrong. The EU region is in steep, crippling demographic decline and crippling demographic transformation too in most of its nation states. Ditto Russia. Ditto China. The USA is in the least worst shape on these fundamental indicators of civilisational health. Short of robots/skynet replacing humans as economic and moral actors.

Thu, 06/05/2014 - 16:33 | 4827959 Thorny Xi
Thorny Xi's picture

Gold is not the foundation of an economy.  Energy is the foundation.  Energy is defined as the power expended in doing work over time.  Gold is nice, but oil and gas are fundamental.

Thu, 06/05/2014 - 20:11 | 4828566 TheRedScourge
TheRedScourge's picture

Exactly. Gold prices have largely gone up due to cost inflation, and the main cost is energy, mechanized and human.

Thu, 06/05/2014 - 12:49 | 4827199 SafelyGraze
SafelyGraze's picture

- swap them for dollars

- swap them for bonds

- swap them for misc securities

- swap them for equities

- swap them for derivatives

- swap them tangible assets

many many levers remaining

 

Thu, 06/05/2014 - 12:32 | 4827138 ebworthen
ebworthen's picture

Just start depositing money into people's bank accounts so you can charge interest on the deposits.

Endless liquidity.

Thu, 06/05/2014 - 12:56 | 4827220 darteaus
darteaus's picture

YOU'VE HIT ON THE SOLUTION!!

The ECB prints money and puts it directly into people's bank accounts with the caveat that they can't withdraw it until it vests.

Money gets into circulation, people get the money, banks get the charges!

EVERYBODY WINS!

Thu, 06/05/2014 - 13:01 | 4827242 seek
seek's picture

You basically just described Cyprus.

Instead of printing, they emptied the accounts, then deposited shares that aren't usable until vested at a later date.

I'm sure eventually something like this will actually get implemented, both in the EU and US, since all the mechanics are there to make it happen. It's still a madness that occurs as the system is in its death throes.

Thu, 06/05/2014 - 13:48 | 4827400 cougar_w
cougar_w's picture

Hmm ... interesting.

It wouldn't be in practical circulation due to the vesting requirement, but yeah it would be counted toward M1. A bit of magic at work there.

And it would create a short-term wealth effect; banks would write loans against the unvested value as collateral held in escrow; with inflation being this low cash is the best collateral there is. The loans would be bank money and not government money so it is marginally non-inflationary in strictly monetary terms, but it would instantly increase M1 velocity. Good for statistics.

I'd give it 6 months to make a visible difference, and a few years to sustain that. But the risk of bank failures would rocket and in the end I think the grinding systemic problems of under-employment and devouring deflation just get worse due to the perceived lack of urgency in fixing these.

So one last party, a few years of feeling good, and then the black plague arrives and kills everyone.

Not a bad way to go actually.

Thu, 06/05/2014 - 12:32 | 4827139 earnyermoney
earnyermoney's picture

Where's Jump From Building?

Thu, 06/05/2014 - 12:32 | 4827141 NOTaREALmerican
NOTaREALmerican's picture

Jail the immoral savers!!!

Thu, 06/05/2014 - 12:47 | 4827195 Sudden Debt
Sudden Debt's picture

SAVERS ARE THE NEW EVIL BOND SPECULATORS!!

and I bet they'll also lose...

Thu, 06/05/2014 - 12:56 | 4827219 disabledvet
disabledvet's picture

The last time savers mattered was the Great Depression.

The Zionists repealed that law...and still are it would appear.

Careful what you vote for!

Thu, 06/05/2014 - 12:35 | 4827146 Temporalist
Temporalist's picture

"There is no plan B." -Brilliant Central Planner

"We do not monetize the debt." -Another Brilliant Central Planner

Thu, 06/05/2014 - 12:37 | 4827160 alien-IQ
alien-IQ's picture

"Give me control over a nations currency, and I care not who makes its laws.”

The Original Central Bankster

Thu, 06/05/2014 - 12:58 | 4827228 disabledvet
disabledvet's picture

"Make sure the Bank Presidents are on the payroll."

Oops. Forgot that one...

Thu, 06/05/2014 - 12:35 | 4827154 AccreditedEYE
AccreditedEYE's picture

Clearly the market believes otherwise. Banks crying for Vol doesn't mean they gonna get it.

Thu, 06/05/2014 - 12:36 | 4827156 alien-IQ
alien-IQ's picture

there are many ways to steal from the poor. that list covers but a few. the real list is, I suspect, much much longer.

options? they have plenty...but they all involve stealing from the poor.

Thu, 06/05/2014 - 12:38 | 4827162 NDXTrader
NDXTrader's picture

He's got the ultimate option - now that the Germans have backed down he can print as many Euros as he wants

Thu, 06/05/2014 - 12:38 | 4827163 Caveman93
Caveman93's picture

Where is "Nail Gun"?

Thu, 06/05/2014 - 12:40 | 4827168 angel_of_joy
angel_of_joy's picture

You can do it with a hammer too...

Thu, 06/05/2014 - 13:45 | 4827396 JRobby
JRobby's picture

Lighter fluid, Zippo, hear his fat sizzle and pop.

Thu, 06/05/2014 - 12:39 | 4827166 Winston Churchill
Winston Churchill's picture

Looks like tha latest euro election results have royally

fucked Draghi's plans, and by extension the NWO.

They are going to need forece majeur to abrogate the treaty.

Just as well there are no potential wars out there.

Oh wait....

Thu, 06/05/2014 - 12:47 | 4827194 gcjohns1971
gcjohns1971's picture

Yeah,

So a major war on the continent would about do it, eh?

This is why I keep harping on people to tone down the Jingoism.

The EU is insolvent. The US is insolvent. Any rational person can see it.

Fears destroys rationality.

War produces fear.

Russian chest-beating is counter-productive to their stated goals.

Thu, 06/05/2014 - 12:45 | 4827187 Itchy and Scratchy
Itchy and Scratchy's picture

Inflate until it hurts!

Thu, 06/05/2014 - 12:47 | 4827191 Bill of Rights
Bill of Rights's picture

This Major Copper Mine Is Shutting Down

 

 

The move comes because of an ongoing ban on the export of copper concentrates out of Indonesia. Imposed by the government in an attempt to force miners to upgrade their products in-country.

Newmont has been stockpiling copper concentrate at the mine site since the export ban came into effect in January. But the company said it has now run out of storage space--and thus has no choice but to cease operations.

Thu, 06/05/2014 - 12:52 | 4827210 disabledvet
disabledvet's picture

Stop being the Party Pooper Gary Cooper!

Copper Schnapser!
It's all bullshit now!

Thu, 06/05/2014 - 12:47 | 4827192 carbonmutant
carbonmutant's picture

"Legal Tricks"...???

Thu, 06/05/2014 - 12:50 | 4827203 disabledvet
disabledvet's picture

Because I'm a Goldman toady and "Jewish Confetti" is my middle name?

Thu, 06/05/2014 - 12:52 | 4827209 Obama_4_Dictator
Obama_4_Dictator's picture

but, but, but Green Shoots (tm)

Thu, 06/05/2014 - 12:53 | 4827211 darteaus
darteaus's picture

"The problem with socialism is that eventually you run out of other people's money [to spend]."

Thu, 06/05/2014 - 12:57 | 4827222 whisperin
whisperin's picture

Since it looks like this could drive a nail into the money market coffin where are european companies going to go for their corporate paper? Won't this actually drain liquidity?

Thu, 06/05/2014 - 12:56 | 4827223 TheRideNeverEnds
TheRideNeverEnds's picture

Sound money and free markets getting BTFO!

Thu, 06/05/2014 - 12:59 | 4827232 BrigstockBoy
BrigstockBoy's picture

I remember when saving was a virtue. As a kid you were given a piggy bank and it was impressed on you that pulling the plug on the bottom was frowned upon. Now they sell toy ATMs...

Thu, 06/05/2014 - 13:03 | 4827243 buzzsaw99
buzzsaw99's picture

let me get this right. accounting fraud, though it is illegal, is okay. however, under the treaty we can't monetize, so we must lie about it instead and that makes it okay. is that the gist of it??

Thu, 06/05/2014 - 13:12 | 4827269 gcjohns1971
gcjohns1971's picture

Puhlease!

Draghi is doing QE.

He just has to disguise it so that the German public doesn't freak.

What he is doing with LTRO and ABS is essentially letting people buy a hotwheels Maserati, then take a 'loan' for that Maserati - the loan being an inflationary accounting entry - and then sell EITHER the loan or the Hot-Wheels toy Maserati back to the CB as though it really were a real Maserati.

This is QE with one step of imaginary collateral production added to accommodate the German palate.

Banks and Government's ability to come up with imaginary collateral is at least as great as their ability to write Bonds with imaginary rates of redemption.

Thus what he is already doing is a difference of style, not nature.

Thu, 06/05/2014 - 15:42 | 4827766 SDShack
SDShack's picture

Yep, I really love how he goes to great pains to describe how the ECB won't monetize EU debt, but I wonder how he squares the fact that Belgium is more than happy to BUY every fucking US treasury discarded by China or Russia. Or how the US Fed bailed out the ECB. These sociopathic bankers are all the same. Borders don't mean anything. It's all just one giant World Wide Debt Ponzi where one hand takes and the other hand takes.

Fri, 06/06/2014 - 03:21 | 4829237 Ghordius
Ghordius's picture

yes. with one important difference: those sovereign bonds are on eurozone banks balance sheets, instead of the ECB's. which makes it a different political game

Thu, 06/05/2014 - 13:59 | 4827451 Itchy and Scratchy
Itchy and Scratchy's picture

Are they sold out of options too?

Thu, 06/05/2014 - 14:03 | 4827466 ejmoosa
ejmoosa's picture

There's the best option available that has not been tried.

 

Roll back the endless rules and retulations that are keeping businesses from generating more profits.

 

More profits generate more competition which generates new ideas and more hiring.

 

Have we forgotten why businesses are in business in the first place?

 

Thu, 06/05/2014 - 14:46 | 4827583 Quantum Darwinism
Quantum Darwinism's picture

Oh that would be way too much common sense for the average politician.

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