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6 Reasons Why ECB Will Avoid QE As Long As Possible (And Why The Fed Did It)
Yields on European sovereign debt have collapsed in recent months as investors piled into these 'riskless' investments following hints that the ECB will unleash QE (at some point "we promise") and the economic situation collapses. However, Mario Draghi has made it clear that any QE would be privately-focused (because policy transmission channels were clogged) and the appointment of Blackrock to run an ABS-purchase plan confirms that those buying bonds to front-run the ECB may have done so in error. As Rabobank's Elwin de Groot notes in six simple comments that he expects continued "procrastination" by the ECB over sovereign QE even after dismal economic data - and in doing so, exposes the entire facade behind The Fed's QE.
Six reasons why the ECB will delay Sovereign QE as long as possible (via Bloomberg)
1) Legal constraints, or risk that ECB will be challenged in court for tinkering with “debt monetization”
2) ECB and national central banks would expose balance sheets to heightened credit and duration risk
3) QE may not deliver sufficient “bang for the buck” as bund yields are already low
4) Unclear whether program would have much impact on real economy
5) QE disturbs efficient allocation of resources
6) Risk of creating bubbles in asset prices
Perhaps it is time for the Fed to read those last 3!!
* * *
So buying sovereign bonds in the view that the ECB will be the big bid for you to sell to in the future at any price you like appears to be "wrong" and with the massive positioning apparent in the market this could be a problem. In fact - if one were to try to trade an ABS-QE, it is the ABS risk premium compression alone that should be traded... (as we noted here, real borrowing costs remain extreme)
These are "market" rates... i.e. what real risk is being priced at away from the hand of Draghi...
And so - smart money will be selling government bonds and buying any and every ABS-backed asset they can find in an effort to monetize the ECB's risk compression. The question is - who wil be the first seller?
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Bwahahahaha. Which will result in the emergence of US/EU. Merely in text book theory.
The biggest reason why they will do it is a bunch of banksters will become richer.
listen, the Dollar, Ruble, and Yuan will simply inflate away debt at govt levels. We should quit with the "US is bankrupt" mantra. Euro is a different animal.
Tip for the future at a personal level: bread will be sold by the slice, wine by the cup and butter by the stick. Govts will still own everyfrickinthing and priiiiint!
I thought the euro was under limitations due to the lisbon treaty?
Maastricht treaty
Oh the humour.
Fed knows EXACTLY what and for who they do what they do.
There is a secret tunnel between the ECB in Frankfurt and the Bundesbank in Taunusanlage 5.
Everybody who votes for QE will be brought there and waterboarded.
And thousands can be made disappear in the new concrete foundations of the Geldmuseum guarding our Gold in the new shrine : - )
Don't tell Netanyahu; he's been claiming to bomb secret tunnels for a few weeks now...
Yeah, yeah, yeah. Deutchebank's derivative exposure makes QECB a done deal. Move along. More BS jawboning. Need to transfer counter party risk to the EZone chattle just like the US FED did to the US taxpayer.
BUT ECB QE = GREEN SHOOTS = ALL IS WELL! We just had a few days of Monsoon rain in the dry, dusty Arizona desert and my backyard is full of green shoots! I'm pretty sure that if I just let these shoots grow, I'll have a backyard full of beautiful, fruitful and economically rewarding trees - maybe some orange, apple and pear trees, or maybe even some vegetables & herbs will sprout up. Dammit, I might even get a few oaks or tall timber pines from these little green shooters, so I can add a new wing to my house, build a boat or maybe even there will be enough wood to start a new homes construction biz. Thank you Bernanke and Yeller for teaching me about green shoots! Its good to be rich! Wait, hold on. My 4 year old son is saying something. Can't quite understand him since I'm drunk with green shoots punch. "They're what?" I have to yell at him because the little sucker is insistent that I look a little closer at all these 'lil shooters. He's saying they're all weeds. I don't believe him. Yes its true that we don't have oaks and timber in the desert - but things are a changin' aren't they with all that global climate change warming stuff. Maybe there really is a forest popping up in my back yard! WHO THE HELL ARE YOU TO TELL ME THAT MY DREAM PLANTS DON'T GROW IN THE DESERT? Doesn't matter, even if they are only weeds as my 4 year old figured out, I'm sure I can get rich off those too - after all, they are green shoots...and green shoots equal real recovery, then growth, then not-so-excessive exuberance, then bank-silly riches. Where is that little shit anyway - time for him to shut up and take a nap.
ECB has no authority and no backing to leverage up and perform QE. There is no common European tax jurisdiction to enslave and put into eternal bondage. Different scenario in the US and with Fed monetizing all UST debt.
Draghi can print Euros from nothing and buy bonds but that would be the end of the Euro.
This whole notion of ECB QE is just more jawboning and downtalking of EUR strength. It works until it doesn't.
There's at least a chance in hell that Russia will accept EUR and peg RUB to EUR.
There's NO chance of QE for Europe.
I've said in other comment of a past article that the last LTRO conudcted by the ECB was, net outcome, a reduction of currency ammount (previous "injections" of GREATER magnitude were to be retired meanwhile the new LTRO is being conducted).
The "damn differences" between EU interest groups are in fact the last EU salvation. It's a de facto power restriction.
I think too there's no chance for ECB->QE (even if some "actions" are taken for "cooling" the newspapers, as the last LTRO was).
Do the Europeans want to become Japan???????????????????
4) Unclear whether program would have much impact on real economy
5) QE disturbs efficient allocation of resources
6) Risk of creating bubbles in asset prices
"Perhaps it is time for the Fed to read those last 3!!"
Bernanke wrote in 1988, that QE doesn't work. The FED didn't care, as main Street is not the Fed's constituent, the bankers are.
The Fed knows them very well. But what should it say? "QE is not for you sheeple, it is for the banks and 1% and we only sell it to you with the phrases you want to hear"?
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