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The ECB "Leaks" Its 3 QE Choices
In its usual 'leak the plans and judge market reactions' methodology, unnamed sources have released to Dutch newspaper Het Financieele Dagblad, three potential options that the ECB is considering for buying government bonds. As the Jan 22nd ECB meeting looms, Reuters reports that while the ECB declined to comment, this 'strawman' appears very similar to comments made by ECB chief economists Peter Praet last week.
As fears grow that cheaper oil will tip the euro zone into deflation, speculation is rife that the ECB will unveil plans for mass purchases of euro zone government bonds with new money, a policy known as quantitative easing, as soon as this month.
According to the paper, one option officials are considering is to pump liquidity into the financial system by having the ECB itself buy government bonds in a quantity proportionate to the given member state's shareholding in the central bank.
A second option is for the ECB to buy only triple-A rated government bonds, driving their yields down to zero or into negative territory. The hope is that this would push investors into buying riskier sovereign and corporate debt.
The third option is similar to the first, but national central banks would do the buying, meaning that the risk would "in principle" remain with the country in question, the paper said.
* * *
With German 5Y yields negative, and the entire curve at record lows, we can't help but wonder just how much 'bang' for the European taxpayers' buck any of these plans will have now that speculative capital has more than priced in Draghi's decision.
For now, the reaction is not positive...
As this is definitely a problem as if Draghi announces plans in principal on Jan 22nd, the market will not be happy. It is clear the ECB is not close to a decision...
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but... but... "rates are going up soon"....
LMFAO!!!!
The EU's Plan -
1) create more debt in the usual way
2) create more debt in an unsual way
3) create more debt in a way that cannot be considered either usual or unusual
In other news, S&P today made a surprise announcement that the entire Club Med will be upgraded to AAA.
"the entire Club Med will be upgraded to AAA."
Some fresh gold colored paint and perfume for these turds to make them look valuable.
Hm, wait a minute, AAA countries in the Eurozone are ... Germany, Luxemburg and Finnland, right? Maybe Denmark, since their currency is pegged to the Euro. Those countries have about 2,5 trillion Euro in debt/bonds outstanding. The largest country by far, Germany, will not even have new debt this year, they just roll over some old debt. And the ECB plans to buy 1 trillion Euros in bonds from those countries? I guess there will be not nearly as much on the market. Ridiculous.
ridiculous? apt word
Don't like American toilet paper? Here, try our EU toilet paper....
nothing beats Japanese toilet paper! Softest in the world....
1. ctrl-p
2. turbo ctrl-p
3. out of ctrl-p
cowdiddly FTW!
Testing the waters. All central banks will be buying anything and everything with their empty promises before this is over.
Just not gold. So said the Jackass himself.
Once you have mentioned that you are carrying a bazooka to everyone, some folks get nervous, so you need to manage expectations. This is fairly standard procedure in serf land.
(For those who missed it, google "ECB bazooka")
How about a nice game of mutually assured destruction to pass the time?
yeah, but i would like to see that:
Daniel Stelter, founder of the Berlin-based think tank Beyond the Obvious and a former corporate consultant at Boston Consulting, has even called for giving €5,000 to €10,000 to each citizen. "It has to be massive if it is going to have any effect," he says. Stelter freely admits that such figures are estimates. After all, not a single central bank has ever tried such a daring experiment.
LOL
That dude has chemtrails floating around his pad, wear a mask motherfucker.
Gold Bitchez.....Take that to the boat
I thought it was now illegal to sell/smoke ' hemp ' in the coffee bars and pubs in Holland.
Hey, Greece wants more bailouts. Fork over billions for that.
No, *this* bailout will be the last. Then Greece will *definitely* be fixed.
Unless, of course, the bailout is deemed "not large enough" to work, thereby necessitating another bailout.
That should be good for a green rally...
"the market will not be happy."
we're deep in the game now
as QE has proven ... Mr Market only happy when qe has no bounds on amount or duration
anything short of "all in" will be met by temper tantrum
Merkel runs the show.
Draghi is the bitch with a credit card she can't use.
We've exhausted the myth that there's a shortage of finances to do things in the economy.
What we have is a shortage or reasons to take the risk to do anything.
Taxes at every step of your business.
Rules and regulations that are set to cure the world's social and environmental ills(real OR imagined).
Rules and regulations that are meant to protect larger business at the expense of smaller ones.
So while the Central Banks of the World try to get us to take the money and do something, do anything,
the rest of us are giving them the finger and saying
"WHY BOTHER?"
I couldn't have written it better. If the bottom line is that they take all of the fruits of your efforts trying to reach your goals to get something done and then channel it into doing nothing productive or worthwhile: welfare, war, crony capitalism, overpaying people who do next to nothing, etc., then why would you want to continue? You just want to sit down and stop. How do economists quantify that? But it's real, and there are many more who also feel this way, I'm sure.
Que Germany in 5....4....3....2...
This is a tacit admission that they don't know WTF they are doing, and haven't a clue how to really fix it. The time to fix it was to never let happen in the first place. The time to fix it was 1983, when the insanity began to skyrocket. Now look where we are. This whole farce can be found filed under "Presumed investor confidence", in the Twilight Zone.
"The third option is similar to the first, but national central banks would do the buying, meaning that the risk would "in principle" remain with the country in question, the paper said."
imho it will, if at all, be the third options. NCB to the fore
all talk and hollow promises.
all the ECB can do now is lie and try and trick people into beliving in the future - so the bankers can steal their money.
"europe" is already nothing more than a giant homeless shelter. better to just let the whole thing collpase now and re-build from scratch.
a tear-down is a tear-down. no use throwing good money after bad.
Draghi is a genius. To get the Germans on board yields on 10 y German bonds go to minus 10% so in a few years allmost all debt is gone. They have no clue that is obvious.
No, they are all idiots promoting a ponzi scheme:
In a world with quite saturated markets it is not possible to grow exponentially out of debt, if all money is only created as debt (and no sane mind can even want that in regard to the sustainability for life on our planet).
Austerity can never work in a system, where money is only created as compound interest bearing debt, because paying back debt means the money vanishes. Which is deflationary. But because of interest there must always be payed back more money than is available.
Additionally who should be the exponential consumer, if everyone is increasing his productivity and profitability? One's gain is another one's loss.
The only way to bring down debt/GDP is by creating inflation. But QE is not creating inflation. QE is pumping money into the financial sector, while the real economy is strangled with austerity. In a system that needs exponential growth to avoid collapse.
Therefore the only "solution" within the logic of the established criminal ponzi scheme is to print money for the average joe, not for the banks - fiscal expansion = deficit spending.
Ofcourse it also can't overcome the mathematically instable construction of the system, but inflation is what keeps people their jobs and keeps the economy going on until a restart after debt cancellation - while deflation makes the economic ponzi system freeze up and makes most people lose their jobs.
Option 1 is a non-starter. It has been discussed and rejected multiple times during the various 'PIGS' crises.
Option 2 is to appeal to Germany's greed. I don't think it will work. Germany has too sharp a memory of what it means to expand borrowing in this way... and it will lead to an expansion of German borrowing as a wide array of social spending will become apparently viable that is possible no other way.
Option 3 is the only one likely to get past Germany, because it is the hardest to argue against. Technically the national CBs can already do it, I am told. The question is whether it will be a sufficient insult to Germany to cause her to jettison the EU altogether.
Yes I fully agree. Guessing option 3 as well but I do think many underestimate the willingnes of Germans to quite with the EU (population, not necessarily government (but perhaps including government)). Same goes for UK and to an extend Holland.
If there wasn't the no collateral Target 2 system, I would agree. But in case of default **and default there will be**, it would be the same game we have already now (e.g. with ELA emergency liquidity assistance). In the end Germany will be liable when everybody will wire its money to get it to "safety". So not a good thing at all.
The Euro is prone to fail, that's reality.
The purpose of CBs is to function as wealth re-distribution mechanisms, primarily to the banks, secondarily to the governments they supposedly serve.
This necessarily involves someone getting something for nothing.
Something for nothing is inherently inflationary because it is a powerful disincentive to real productivity. The reason is simple.
For one person to get something for nothing, another must get nothing for something.
Hence, even when CBs actually try to print no more than enough to offset deflation (which they have not and will not) it still results in too many getting something for nothing, and therefore still results in a weakening currency, and an eroding economy.
This is what the all the Oligarchical socialists miss, from 19th and 20th C progressives like Aldous Huxley, and George Orwell, right to present Banking Oligarchs and their corporate and government clients.
They imagine that a modern economy can be sustained in 'balance' with little or no innovation to upset the social and economic apple-carts.
They imagine that this is possible by means of what is essentially serfdom, or slavery, for the vast, vast majority of humanity. They imagine status quo is possible by means of consistently delivering 'Nothing for something' to the majority and 'something for nothing' to themselves.
The opening gulfs in Western Society are proving them wrong. The only alternative to ever growing production, is ever growing destruction. Stasis is a fictional social state for all but the dead.
The 'Nothing for Somethings' eventually become 'Nothing for Nothings' or they rebel.
since I noticed that you know a few things about central banking, a small objection:
"The purpose of CBs is to function as wealth re-distribution mechanisms, primarily to the banks, secondarily to the governments they supposedly serve. "
In most of the eurozone countries this purpose, traditionally, was inverted
so the national banks, traditionally, serve the governments, first. then they backstop the government debt, second
then you have the banks, which often were not private, or belonging to local... corporations in the sense of religious orders or federated states or even cities. see for example a Monte dei Paschi di Siena, or the German Landesbanken, or several religiously held Spanish banks, etc. etc.
and those banking systems, more often then not, served the state, too. for example by buying plenty of sov bonds
so we speak of national banks (NCB in EuroSystem speak) an national banking systems. the implications are profound, but for simplicity's sake, if someone is "stealing", it's usually the state
and this should explain a bit why the EU has now a Banker Bonus Cap (still fought against in the UK)
Great post.
Thanks.
Not sure I agree about the inverted relationship...if only because I watch what they do as opposed to what they say.
The difference between stated intention, and observable action, may simply be a case of the best laid plans of mice and men.
But I believe I would argue that the difference in CB stated mission and observable actions of the banks is more akin to the scorpion from 'The Scorpion and the Frog'.
It is simply in the nature of the institution, and the minions that fill it (they come from the commercial banks, and are invested in them, hence the incentives are perverse).
the nature of institutions changes, when the state is heavily in it
soldiers vs mercenaries, ObamaCare vs British NHS, tax farmers vs tax commissioners, "capitalism vs socialism"
a big, fat, inefficient scorpion which is nevertheless not allowed to sting the frog. looks worse, but it's trusted, tested methods
Whether one is murdered by a soldier or a merc makes little difference to the victim.
Ditto, whether the bank that stole from him was owned by the construct known as the state, or by the construct known as a private corporation.
You focus too much on the burglar's status, and not his crime. Nor his tools - which are the issuing power plus fractional reserve currency creation plus interest.
And the difference between the "public" and "private" banks is likely far less than you seem to suppose.
Why choose, do all 3 for 3 times the fun?
To me it's obvious that monetary policy in form of QE does not work to create inflation. And ofcourse "they" know it!
It isn't rocket science to understand that the money must reach average joe, not the banks and Wall St. to create inflation. Everything else is just asset price inflation, but not a result of a higher velocity of money due to higher economic activity.
After the failed attempts of monetary expansion the fiscal expansion will come. It has to. And it works 100%. It will come, when all monetary measures have been used up. Read Bernanke's famous helicopter speech. Do not ignore it but prepare yourself.
zees eez, how you say....sheetbag?
I wounder if they choose 3, use the seperate central banks, but only allow buying using the keys (so Germany is think 18% of total QE spain is 8% Italy is 12% france 14%, and Greece is 3%. So if they do 500 bill that might be ok. and possible if its discretionary Germany wont buy their bit or not unless they need to in the future which might see German / Italian spreads narrow.. ie why would Germany want to do QE at there levels when their economy is ok.
Also then the risk for each country might be better factored in.. so if they spend too much and use their QE allocation then their bonds might sell off ect.. which Germany might be happy as it will bring back the risk for excessive borrowers relative ect..