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ECB Draghi’s QE Battle With Germany; Rules Out ECB Gold Buying

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ECB Draghi’s QE Battle With Germany; Rules Out ECB Gold Buying

The European Central Bank will decide early next year whether to follow the Federal Reserve, Bank of England and the Bank of Japan with quantitative easing or money creation to buy government bonds and other assets but will not buy gold, its president Mario Draghi said yesterday.

Speaking in the ECB's new 1.3 billion euro headquarters, an imposing Frankfurt skyscraper designed to show the strength of the ‘single’ currency, Draghi threw down the gauntlet to Germany and signaled that he would not allow opposition from Germany or anyone else to stop the ECB’s QE.

Despite the fact that it has failed in Japan and is meeting with mixed success in the UK and U.S.

In his clearest language yet, Mario Draghi underlined his desire and commitment to debt monetisation, and argued the case for creating new money to buy assets such as government bonds. He made the comments during the question and answer period of his monthly press conference following the ECB’s monetary policy meeting.

Interestingly, Draghi ruled out the printing of money to buy gold bullion. He was asked what types of assets the ECB would buy as part of its quantitative easing program. He responded, “we discussed all assets but gold.”

Speculation arose that gold could be part of the central bank’s asset purchases after Yves Mersch, a member of the ECB executive board and former Governor of the Central Bank of Luxembourg, said on November 17 that the ECB could buy a range of assets as part of its quantitative easing program.

The fact that the ECB may soon print money to buy very risky European corporate, bank and sovereign debt from vulnerable economies such as Spain, Italy and Greece and has, from some unexplained  reason, ruled out buying gold will make the Germans and others opposed to ECB QE very nervous.

This is likely leading to increasing tensions and divisions. Indeed, Die Welt reported yesterday that Draghi had lost the support of the majority of the ECB Executive Board.  

Draghi’s remarks, which came within minutes of a meeting where he clashed with German officials over his ambitions, set him on a possible collision course with the euro zone's biggest and single most important country.

Painting a gloomy picture of the euro bloc's prospects, Draghi announced that the ECB expected economic output to be lower in the coming years than it had predicted three months ago, while a slump in the price of oil may lead to lower inflation.

Consumers and businesses are welcoming the fall in oil prices and lower inflation but today low inflation is seen as a trigger by central bankers including Draghi, the ex Goldman Sachs banker, to print money to buy government bonds.

Savers, people and businesses concerned about inflation throughout the world and indeed in Germany oppose this.

"QE has been shown to be effective in the United States and UK," Draghi told journalists at a press conference. He ignored the fact that the Bank of Japan’s QE appears to have failed as it has not led to a revival of the moribund Japanese economy.

However, a somewhat strident Draghi made clear that he would face down the considerable political opposition to further radical action.

Last week, Sabine Lautenschlaeger, Germany's appointee to the ECB's Executive Board, said now was not the time for state bond buying. But Draghi said there was no need for all 18 countries to agree.

Draghi lacks the crucial German support for doing full-blown QE but combatively, he said he did not need that support.

"Do we need to have unanimity to proceed on QE or can we have a majority? I think we don't need unanimity," Draghi said, delivering a strong message to Germany.

Lautenschlaeger and Jens Weidmann, the head of Germany's Bundesbank, opposed a decision on Thursday to harden up Draghi's goal of bolstering the ECB's balance sheet of assets, such as credit to banks, central bank sources told Reuters.

The ECB has set itself a goal of expanding its balance sheet -- buying assets from banks and others in return for cash it hopes will be pushed into the economy -- by up to 800 billion or even 1 trillion euros ($1.24 trillion).

New forecasts by the ECB predicted the bloc's economy would grow just 1.0 percent next year rather than the 1.6 percent predicted just three months ago.

Inflation is seen at just 0.7 percent in 2015, down from a September forecast of 1.1 percent and way below the target of just under 2 percent.

The European Court of Justice will deliver a non-binding ruling on Jan. 14 about the legality of the ECB’s OMT program, which was credited with stopping a rout in European government bonds in 2012 by pledging to buy debt of countries signing up to reforms. A negative judgment by the court could ultimately impinge on the ECB’s freedom to intervene in sovereign-debt markets.

German opposition, due to their genuine and valid concerns about currency debasement, inflation and hyperinflation, nonetheless remains an obstacle.

It would appear that a titanic battle is taking place in the ECB. If Draghi and the uber monetary doves win, expect euro QE and a devaluation of the euro in the coming months.

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Mon, 12/08/2014 - 12:43 | 5528956 Spungo
Spungo's picture

That inflation shopping cart is extremely misleading. 1998 is the starting point because that's the year oil crashed through the floor. 2005 and 2013 are the end points because those are two peaks in oil prices.

Mon, 12/08/2014 - 12:42 | 5528944 realWhiteNight123129
realWhiteNight123129's picture

Draghi should be sacked.

Mon, 12/08/2014 - 12:22 | 5528852 jvetter713
jvetter713's picture

Is not buying gold with monopoly money kind of like honor among thieves?  Buying gold would be cheating essentially and you would be kicked out of the game?

Cause if I ran any of the various central banks, I'd buy every ounce of gold and silver that was available.

Mon, 12/08/2014 - 11:42 | 5528686 Weisbrot
Weisbrot's picture

how can someone buy what no one has to sell?

 

Mon, 12/08/2014 - 11:39 | 5528678 silverer
silverer's picture

Events seem to be spinning up with mile stones of events occurring more often and closer together. Let's call them kilometer stones, because they are shorter than miles but of no lesser importance. At the end of it all, it becomes extremely simple: who controls the tangible assets of the world? I have a feeling that the middle class will be sidelined in a manner that sets some world records.

Mon, 12/08/2014 - 10:56 | 5528451 supermaxedout
supermaxedout's picture

The ECB discussed about all kind of assets but gold.

Yes, that is true, because they must not discuss about gold. Gold is crystal clear to them. To announce to buy gold would have been the end of the US Dollar as reserve for the Central Banks. Gold is much better that is clear for everybody but to kill the Dollar by purchasing gold instead of Dollars is simply the end of the monetary system as we know it. 

Draghi does not want to go down in history as the guy who killed the system.

Mon, 12/08/2014 - 11:43 | 5528689 Weisbrot
Weisbrot's picture

how can the ecb buy what no one has to sell?

Mon, 12/08/2014 - 11:42 | 5528685 silverer
silverer's picture

Gold to the present system is like the crucifix to the vampire.

Mon, 12/08/2014 - 09:39 | 5528150 wendigo
wendigo's picture

Remind me again why Germany joined the EU? 

Mon, 12/08/2014 - 09:44 | 5528162 Ghordius
Ghordius's picture

Germany did not join the EU. Germany, together with France, Italy and the BeNeLux countries, founded the EU. In order to have a common market, which is a fancy way to say "no more trade wars among ourselves". And Germany suffered heavily under trade wars, and knows a few things about them

meanwhile, this article is about the ECB, not the EU

Mon, 12/08/2014 - 09:35 | 5528133 John Law Lives
John Law Lives's picture

"Despite the fact that it has failed in Japan and is meeting with mixed success in the UK and U.S."

Since when was QE a "mixed success" in the U.S. and the UK?  Are you citing the artificially inflated stock markets as a "success"?

Mon, 12/08/2014 - 09:31 | 5528118 Kina
Kina's picture

Germans know Europe is toast...there is no point in bailing out and printing..since it solves nothing and makes the problem bigger and bigger. If printing actually fixed a problem then they would be for it... but giving more money to Italy, Spain, Portugal, Greece etc etc....throwing money down a bottomless pit.

 

If the golbal elite were one great big toilet bowl...Drahgi would be the bottom feeding scum, and Lagarde his toe sucking buddy.

Mon, 12/08/2014 - 09:37 | 5528135 Ghordius
Ghordius's picture

Germans know that Europe is their "hood". They also know that they can't tow Germany to the Pacific Ocean. Oh, and they also know that "rest-of-Europe" buys half of their exports

damn Germans, they seem to know a lot. must have been the "University of Hard Knocks", which they visited twice

Mon, 12/08/2014 - 12:18 | 5528837 besnook
besnook's picture

they can't move to asia but they can they can open a pipelione of trade with china through russia.....but not until the usa is done. it is verboten.

Mon, 12/08/2014 - 09:09 | 5528059 Downtoolong
Downtoolong's picture

OK, here are two reasons we don’t want to buy gold.

1 - It would drive up the price of gold, clearly demonstrating that QE destroys the real value of our currency.

2 - Most of those who would be willing to sell us their gold don’t really own it anyway. It’s just hypothecated paper, derivatives, and shit like that. Hell, did you forget I used to work for Goldman Sachs? We invented those schemes. 

Ciao,

Mario

Mon, 12/08/2014 - 08:58 | 5528046 eddiebe
eddiebe's picture

Who will finally stand up to the international banking cartel? It is represented by the likes of DRAGhi. 

Jim Willie seems to think that Putin and Jinping are leading a coalition of BRIC ( and other ) countries that have had enough of the status quo to oppose the trend. 

Merkel doesn't seem to be in their camp, and actually it is doubtful that Russia nor China are either.There is of course Venezuela and Iraq. We see what happened/ is happening there.

The now is that all the world leaders and their central banks have and love their printing press, and if they don't the long arm of the current banking elite has all the means to deal with them which mean includes the formidable us military.

Maybe if enough people around the world, especially in the western world become better informed as the scam that is being run on them, the status quo can be changed, or at least tempered, but as of now, I see no concrete evidence of that.

Mon, 12/08/2014 - 08:57 | 5528043 AdvancingTime
AdvancingTime's picture

 ECB President Mario Draghi's last move towards more QE is no more than stupidity on steroids, even words like misdirected and boneheaded do it a disservice. This is more proof that the Euro-zone is in big trouble, both the union and the flawed currency is again begging to crumble.

One is forced to wonder if Japan and the Yen will crash first considering how each day Japan slides closer to the economic abyss or whether the Euro will lead the way into the wastebasket. Draghi has helped the countries of Europe kick the can down the road but this only delays the failure on the Euro. More on how the Euro-zone has failed to make any real reforms in the article below.

http://brucewilds.blogspot.com/2014/09/euro-zone-and-draghi-both-mired-i...

Mon, 12/08/2014 - 09:24 | 5528106 eddiebe
eddiebe's picture

Please get this: It is not stupidity but part of the plan to get complete control of everything and everyone. These people are not stupid, unless you consider the karmic consequences for themselves. But I'm sure they don't.

Mon, 12/08/2014 - 08:53 | 5528039 Aeternus
Aeternus's picture

So..... Keep shorting EUR/USD and keep stacking Au, Ag and Pb?

https://www.youtube.com/watch?v=RCtzQRkrj0U

Mon, 12/08/2014 - 08:01 | 5527970 Alberich
Alberich's picture

Understand that the ECB may or may not buy gold, but they certainly wouldn't telegraph that in advance, as it would put upward pressure on the gold price and undermine an already shaky fiat regime even as it made the purchase of that asset more expensive. On the other hand, they certainly want to talk up the value of Portuguese used-car ABS, etc.

The Russians and the Dutch know the score. First you get the gold in your possession, then you crow about it.

Mon, 12/08/2014 - 08:06 | 5527978 Ghordius
Ghordius's picture

+1, not only that, but even "crowing about it" is borderline stupid. further, the ECB will not buy gold. it's too heavily audited, too transparent for that. it's meant anyway to be "gold-neutral"

gold buying or selling is the desmesne of the ECB members. the national banks. like the Dutch National Bank, De Nederlandsche Bank. Way more discreet, this way

Mon, 12/08/2014 - 08:18 | 5527988 philipat
philipat's picture

Gold is too heavily audited? I find that statement to be ludicrous. CB Gold is largely completely unaudited and is declared on the CB balance sheets as "Gold and Gold instruments" as a single entry. That means that ALL the Gold can be Leased/Swapped/Re-Hypothecated and no actual physical Gold remains in the vaults, which is the already the case of all Western CB's. How much more "discretion" is needed?

Mon, 12/08/2014 - 08:21 | 5527997 Ghordius
Ghordius's picture

not gold, the ECB is heavily audited. it has to be, because it's not a national bank, remember? it would be the wrong instrument to buy gold for the EuroSystem. of course, yes, the leasing business is another thing altogether, and London City's rehypothecation rules again another. take the Dutch gold repatriation as example. the ECB was not involved, was it? it's Dutch national gold we are talking about

Mon, 12/08/2014 - 08:29 | 5528001 philipat
philipat's picture

Yes, I see now. Portuguese CDO's and Greek ABS are much better bets to protect the future interests of the peoples of Europe than Gold. I stand corrected......

Mon, 12/08/2014 - 08:34 | 5528012 Ghordius
Ghordius's picture

sarcasm noted, and of good quality. but gold is still a matter of national interest. you yourself mention Portugal and Greece. see? there are a lot of reasons for the ECB to be kept gold neutral, in this environment... even for gold itself

Mon, 12/08/2014 - 09:06 | 5528058 GCT
GCT's picture

Not to worry the Fed ended its QE and Japan is now picking up the slack.  Soon Japan will end its QE and ECB will start up their printing presses.  We cannot have everyone printing at once now can we.  This charade will go on long after I am dead.  People of the world be damned.

Mon, 12/08/2014 - 09:20 | 5528097 eddiebe
eddiebe's picture

I hope you're not 3 years old.

Mon, 12/08/2014 - 08:11 | 5527983 SpanishGoop
SpanishGoop's picture

Draghi rather buys toilet paper than gold.

Smart man.

 

Mon, 12/08/2014 - 07:44 | 5527951 DavidC
DavidC's picture

"We will do whatever it takes....honestly...we will...and we'll buy ALL SORTS of assets...we will...we honestly will...EVERYTHING...honestly...whatever it takes...except gold."

Pathetic.

DavidC

Mon, 12/08/2014 - 08:10 | 5527977 philipat
philipat's picture

If even European "Junk" sovereign bonds are selling at already crazy yields (Spain, Italy etc.) I fail to see what sensible end ECB QE could achieve? I guess that the nuclear option for Germany is the "D" word: Deutsche Marks...

Mon, 12/08/2014 - 08:12 | 5527984 Ghordius
Ghordius's picture

philipat, it's simple. There is one huge beast that has to be fed. The Mighty Stock Market

and you can feed it with QE or with... words. since "the multithroated beast" is anyway more interested in the "future", great words about future QEs satisfy it more then past real QEs

Mon, 12/08/2014 - 08:20 | 5527995 philipat
philipat's picture

To what end? How much longer can this game continue. The average man in the street knows that the real economy is not improving, so I would recommend "Starving the beast". The sooner this sucker collapses, the sooner we can return to a Gold standard and re-set the Global financial system. Of course, the only folks who can't understand this are the Central bankers.

Mon, 12/08/2014 - 08:29 | 5528005 Ghordius
Ghordius's picture

"To what end? How much longer can this game continue"... I asked that question... in the Seventies. Did the average man in the street understand Tricky Dick's gold heist, then?

Around the Eighties it became clear to me that the average man on the street does not understand. Period. He is too occupied with other things. I follow ZH just to be sure what the awareness levels are, and they are still... miserable

nope, if you are utterly convinced that everything will end in catastrophe and/or "Great Reset", then perhaps you are living through a personal religious moment. Won't argue religion here, I find facts and perceptions (which are factual, too) more interesting. Sorry, just my opinion...

Mon, 12/08/2014 - 08:33 | 5528014 philipat
philipat's picture

Ah, so you are a believer in the omnipotence of the Central Bankers? That's fine, we are all entitled to our opinions. I'm not and I have very few paper assets as of now. Time alone will tell but, IMHO, it's never different this time.

Mon, 12/08/2014 - 08:48 | 5528028 Ghordius
Ghordius's picture

why should this make me a "believer in the omnipotence of CBs"? I own gold, and I'm interested in facts. which lead me to hold that gold... as insurance

meanwhile, a "gold bug" seems to be someone that first converts everything in gold, and then starts to pray for a reset? I knew some that "did it" in September 1971

Mon, 12/08/2014 - 09:31 | 5528119 philipat
philipat's picture

Because your earlier mails support the position of The ECB buying assest to "Feed" the equity markets?

Holding a position in Gold is certainly a good insurnace policy. Perhaps 10-15%. I personally am not a "Gold Bug" (And I don't like that term because I find it insulting. We don't call equity investors, "Equity Bugs"?) but I do hold some physical Gold outside the Banking system. I grew up being taught never to put all your eggs into one basket. But my basket, as of now, would NOT include Equities or even Bonds in Western Markets. We had a good run, but investing there at these levels, historically, doesn't lead to good returns. Someting about, Buy low and sell high, I believe?

Mon, 12/08/2014 - 09:39 | 5528147 Ghordius
Ghordius's picture

philipat, what do you think the ECB is "buying" since 18 months? and how does the ECB "buy"... while it's balance sheet shrinks? magic? there is a difference between talking and doing

Mon, 12/08/2014 - 09:53 | 5528179 philipat
philipat's picture

Which brings us back to Germany....fortunately there remains SOME common sense. And I do think that the "Markets" (Remember those?) are growing tired of Draghi's jawboning. In fact that also brings us back to the issue of CB omnipotence? Why have "The markets" believed these idiots for so long already? What they are doing clearly isn't having any impact on the real economy, and won't in my view. Perhaps the real reasons might be Too much debt, NWO AND CENTRAL BANKS. Debt money IS the problem.

Mon, 12/08/2014 - 10:32 | 5528222 Ghordius
Ghordius's picture

why "the markets" have believed Draghi? first, his "whatever it takes" threat against speculative positions was and still is real. second, what the ECB has done up to now - i.e. shrinking it's balance sheet by one cool trillion and going on - is so unbelievably unprecedented that they are simply flabbergasted, go on "reset and wait" mode and then believe whatever they want

tired of Silvertongue's promises? Wall Street demands those promises. Draghi could sing a damn Italian Opera and they would understand "more QE"

meanwhile, the most crowded, skewed market? shorts on EURUSD

Mon, 12/08/2014 - 10:41 | 5528380 philipat
philipat's picture

No, Short Gold/Borrow Yen/Long Nikkei

Mon, 12/08/2014 - 07:55 | 5527962 Ghordius
Ghordius's picture

what I find even more pathetic is that the whole financial world is mesmerized by the words of one man. and nobody, really nobody ever mentions what the ECB is really doing since 18 months. and whenever the ECB's balance sheet is mentioned, it's usually by mistake. "we all know" that CB balance sheets never shrink, eh?

Mon, 12/08/2014 - 09:05 | 5528055 AdvancingTime
AdvancingTime's picture

Well said, the media sure has created figures far bigger than life, We are looking at a paper tiger. The Euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure.

Italy has been in recession for two years; France’s economy has been stagnant for months. Now that Germany is slowing many economist think the chances of a Japan-style deflationary spiral have risen sharply. Blame is being cast upon German policymakers that remain pigheadedly opposed to the stimulus the euro area wants, but what they need is serious reforms. Bottom-line and what it all boils down to is Germany can’t keep buying Greek bonds with German taxpayer money until the end of time.

 http://brucewilds.blogspot.com/2014/10/global-economic-malaise-due-to-debt.html

Mon, 12/08/2014 - 12:59 | 5529025 DavidC
DavidC's picture

Ghordius, Advancing Time,
Good postings. Ghordius, I've read your posts further down and great points, all.

DavidC

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