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What Mario Draghi Really Did
Submitted by Scotiabank's Guy Haselmann,
New ECB actions were specifically intended to reap benefits through Euro currency devaluation. To achieve this aim, Draghi announced cuts in interest rates as well as administering Euro ‘printing’ through balance sheet expansion (€1,000bln or so). The ECB has had recent success as the EUR/USD dropped over 1.5% today and has fallen 5% since July.
A weaker currency is desirable during periods of recessions and subdued inflation. Doing so, however, is not always seamless or the most ideal policy. Many global central banks, for instance, needed to follow the Fed’s lead in cutting rates after the 2008 crisis or risked having an undesirable appreciation of their home currency. Tensions can periodically arise, because two countries cannot become ‘more competitive’ at the same time (‘a race to the bottom’). Clearly, a weaker currency in one country means a stronger currency in another.
There are times, however, when currency movements are mutually beneficial. Against the USD, Draghi is maximizing his efforts to weaken the Euro by trying to utilize ideal timing; expanding the ECB balance sheet at precisely the same time that the Fed’s is flat lining. The widening of interest rate differentials also helps. The FOMC likely welcomes today’s actions. Ideally, Draghi would have also wanted a Quid Quo Pro with Italy and France regarding economic reform; this sounds good in theory, but it is not how politics work.
Despite Draghi’s vacant pleas for fiscal ‘arrows’, he had to ‘do his part’, particularly after backing himself into a corner after his Jackson Hole speech. Nonetheless, ECB actions surpassed expectations today. However, this probably means that the bazooka of sovereign QE is off the table for a while. On the other hand, since the ECB’s new forecasts for inflation and real growth are still too optimistic, Draghi might have positioned himself well to use that tool next year if absolutely necessary.
Some believe that actions today were jointly agreed to by the Fed and ECB to allow the stimulus baton to be passed from one major central bank to another. Could this be to help ease the risk-off fallout that is likely to ensue in anticipation of the first Fed hike? Maybe the price action in US equity markets today should serve as an early warning signal.
It is important to note that there are sharp contrasts between the US and Eurozone in terms of economic reality and needed fiscal reforms. These vast contrasts require different fixes and means that central actions to date have been dissimilar and will ultimately have varying results. Put another way, the ECB did not ‘take a page out of the Fed’s playbook’. Current and past actions of the ECB make much more sense than have those of the Fed.
QE3 was always a questionable and debatable policy stance. For some, its continuation in recent months may have even veered toward irresponsibility. Economic data in the US has been steadily improving and some data is the best in almost a decade. It is not hard to argue that the Fed has been completely on the wrong track with its depression-like policy stance; a stance that has encouraged monstrous market speculation and moral hazard euphoria of epic proportions. It has likely resulted in a mammoth surge in obscured financial instability; the risks of which are not tempered in any way by the smoke-screen known as ‘monitoring’ and ‘macro-prudential’ policy.
Moreover, the six years of Zero Interest Rate Policy (ZIRP), has ballooned debt levels; a good portion of which are buried on the Fed’s balance sheet. Shuffling debt chairs doesn’t fix underlying problems, but merely delays the inevitable. As Martin Wolf wrote in the FT, “beyond some point, the growth in debt adds to the fragility of the economy more than it adds to either personal welfare or aggregate demand. Amir Sufi argues this persuasively in his book House of Debt.” There is still failure in understanding the causes of past crises.
Unlike at the Fed, today’s ECB actions must be worrying to the Swiss National Bank (SNB). The SNB’s 1.2000 floor for EUR/CHF stands diametrically opposed to the devaluation desires of the ECB. With little growth or inflation, the SNB would like to see the CHF weaken. However, there are factors putting upside pressure on the CHF (a safe-haven), including: an attractive interest rate differential to the EU; a 10% current account surplus; and heightened geo-political risks (particularly in Eastern Europe).
How will the SNB manage its peg? It can no longer sell CHF for EUR and invest it in the negative yielding front end of Germany. This is a losing proposition. Will it have to drop the peg? Will it buy USD/CHF and invest the proceeds in Treasuries?
Trades: Sell EUR/USD, EU Steepeners vs. TSY Flatteners, Short Bunds vs Long US10yr, Sell Junk Bonds and SPX, Buy 30yr TSY. Keep an eye on EUR/CHF.
“What happens if you get scared to death twice?” – Steven Wright
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you can dress it up with fancy language - its still ponzi and fraud to me
With unlimited currency swaps between the Fed and ECB, it's irrelevant who provides the money printing-I mean liquidity
that's how Belgium buys all those BOGUS Treasuries. SWAPS in disguise
It's a bankster policy. It's a bankster press release. Therefore it is FULL of bullshit and smoke & mirrors.
Why is the dollar ramping up so hard??
Cleanest shirt in the dirty laundry bin?
Most military bases outside of home country?
Biggest ponzi nation on the planet?
Fastest horse in the glue factory?
Most nukes pointed at Russia?
Most gold stolen by any government?
temporarily losing the "race to the bottom"...
"We have a first strike option against North Korea!"
Folks are selling EUROs and buying USDs.
Historically , currencies in this state do this just befor a devaluation
correct. Lots of FX traders buying private islands now.
The fucks better be employing some former Delta guys as well.
Obviously it's the anticipation of a US rate hike and a Euro QE. It's priced in baby..
Because the interest rate on the dollar is 0.00005% and the interest rate on the euro is 0.00004%.
The Fed Reserve needs no Gold they merely need to know in advance of a devaluation in the Dollar and play the futures market.
Still worth more then the Seppo $
Just wait until they ping-pong raising rates to crush what's left of the middle class.
"“beyond some point, the growth in debt adds to the fragility of the economy more than it adds to either personal welfare or aggregate demand." --
There are 7+ billion people (and growing) all competing for a better standard of living and all the energy, commodities, and resources that make that possible.
There is plenty of demand for products of real value.
Financial "products", not so much.
Go hang yourself you stupid paper-pushing fuck.
I could only up arrow once. I need to QE my account.
QE3 was always a questionable and debatable policy stance. <Jesu, have they EVER done anything RIGHT?>
For some, its continuation in recent months may have even veered toward irresponsibility. <Ya think, got close to going over the line there? Do remember to lash them later with an Al dent wet noodle.>
Economic data in the US has been steadily improving and some data is the best in almost a decade. <Utter bull>
<gag>
- Mario Draghi, Spetember 4th, 2014
These actions are illegal. By no decree does the ECB have the authority to determine each soverign Nation-State's future debt load. History will criticise Draghi and his counter parts severely, epecially considering the monsterous affects that this Neo-Keynesian policy will create.
They want large balance sheets because in this financial system debt is a necessary component to assets per a balance sheet. They are increasing their purchases of assets in the form of bonds, then they expand their debt load to suite. This is the Keynesian nightmare that will teather man to his past and will be used to enslave him.
Give yourself over to absolute monetization!
Swim the warm waters of sins of the fiat
Exotic nightmares beyond any measure
And sensual daydreams to treasure forever
All this and more can be yours if you just SPEND!
Central banks and .govs won't give you cash if you don't shop till you drop
Spend lavishly my friend !
Not even the USD deserves to be dead more than the 16 yr. old life-supported euro currency....please, lord, make it happen soon.
These liars are just concocting up a new covert plan to print more money. Don't worry though it will be easy to figure out what they're up to.
Funny, these faggots can't figure out how to get the "skim" unless they get people to spend, at gunpoint if necessary.
Life must suck if you have no marketable skills.
(disclaimer, no disrespect to dick suckerz worldwide who actually perform a service.)
This article is stupid! First of all European banks were never recapitalized after the GFC. The Fed. used QE to recapitalize U.S. banks.
Secondly Europe only has € 690 billion of available ABS and the ECB would likely only purchase 10-15% of these. Once people realize this is just more smoke and mirrors, Draghi is going to look like an even bigger retard than he already is.
Draghi is going to look like an even bigger retard than he already is.
He will probably walk in drooling and with a limp at the next ECB press conference. He may even mumble the words mommy, bedtime and hold me in random order.
Counterfeit currency to give to his matesSituation..new normal. Assclowns running the show, but it is a grand experiment as they refuse to acknowledge the past. What happens to fiat currencies?
Negative rate savings plan. Put in one hundred frns and get back 98 after a year. Ok then.
That photo of Yellen and Draghi is clear evidence of conspiracy!
okay. just for first grade review since everything is built upon basic foundations. rising interest rates means the cost of money is rising. the cost of money rises when the demand for money goes up. the demand for money goes up when there are perceived opportunities to make money at a much higher return on investment than the daily nut on the borrowed money. rising interest rates are an indicator of good times.
in the investment world, when interest rates rise the value of the underlying bond or coupon bought at a lower yield lose money so are sold. the money gained from selling bonds goes into other securities like equities because earnings are ramping up, capex is ramping up and money is still cheap.
of course, this part of the cycle comes to an end when money becomes too expensive and corrects back to where it makes money again. as the interest rates drop bonds and coupons become more valuable, the equity market tanks because of a reduction in earnings growth and lower capex spending and money rotates into bonds.
that is how it used to work. today they want you to believe that good market conditions will cause a rise in interest rates which will cause a severe correction in the equities market. that statement used to be an impossible circumstance. what makes it possible today? the only thing that makes sense is the rise in interest rates is an admission of the vulnerability of the dollar in the new multipolar world order. the immediate effect would be a dramatic devaluation of the dollar, a crash in the equities market followed by the mother of all dead cat bounces as the new dollar valuation is plugged into earnings/share algo and the fed is forced to buy every treasury bill for the next coupla years.
So what's supposedly going on is the QE baton is being passed to the ECB while the Fed is now ending QE here and raising rates? I don't believe that.
Gotta say it. They look like a two-headed Llama too. Yellen...Llama...lame.
Pushmi-Pullyu.
Doin' little, just swapping debts to keep the boat afloat.
http://en.wikipedia.org/wiki/List_of_Doctor_Dolittle_characters#The_Pushmi-pullyu
Oh, come on...! "Scotiabank's Guy Haselmann"???
Only a mainstream "recovery"-believing character like this could possibly believe the Fed even has a choice to "hike" rates.
Not going to happen: they're boxed in. Rock. Hard place.
"QE3 was always a questionable and debatable policy stance. For some, its continuation in recent months may have even veered toward irresponsibility."
It never veered toward irresponsibility. It was irresponsible from the start.
"There is still failure in understanding the causes of past crises."
Absolute and total nonsense. The math is ALWAYS the same. These people are not ignorant of the causes of past crisis.
Bernanke knew in 1988, that QE didn't work. Greenspan knew in the 1960's that 1920's FED policy lead into the Great Depression. We are being gamed by these financial people and by the government, which supports them. They are talking advantage of the knowlege of past crisis.
In Ecclesiastes it was written that there is nothing new under the sun. The cause of past crisis were figured out in Biblical times. The fact is that they don't care to prevent them, as they gain from them.
Sub prime home loans have become sub prime auto loans. William Black said the Jobs Act moved fraud from debt to equity. They couldn't even wait to start setting up the next crisis. That is how little they care to prevent the next crisis.
Draghi Top.
It appears the central banks of the world have made the crux of their existence a balancing act. You can almost imagine these bankers standing atop a fence. On one side lays a field of inflation and on the other a deep pit of deflation.
A new round of easing by central banks to combat a slowdown in growth may again be in the cards but do not be surprised if this time it is less successful. The magic of this policy is losing its luster. More below on why this is not working.
http://brucewilds.blogspot.com/2013/11/central-banks-try-to-balance-on-f...
The manipulated devaluation of the Euro and QE are coming into effect too late when all the juices have already been extracted by the front-runs of the FED.
Where is the global demand to reap the benefits of a declining Euro ? Exits from Euro equities/bonds will come first before they hit US markets.
Draghi is just smoking knowing that the debtload provides no flexibility for fiscal reforms. He knows too that the other economic blocs (eg China) are simultaneously keeping their currencies down. EC bloc is not that poweful to win in a global currency war.
Not a surprise given Draghi affiliation with the Fed crowd that he will align with them to deliver another lemon for EC with juice for US.