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Goldman Puts Europe's Upcoming QE In Perspective: The ECB Will Monetize Five Times All Net Issuance
Goldman's Sylvia Ardagna puts Europe's QE in perspective. Just in case someone is still confused why Treasurys around the globe are "no offer" for days on end.
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The size of US QE
The Federal Reserve’s balance sheet increased by about $3.7trn from November 2008, when the central bank announced it would begin buying agency debt and MBS, to October 2014, when QE3 ended. Cumulative purchases of long-term treasury securities amounted to about $2trn. The breakdown by period is as follows: $300bn from November 2008 to June 2010 (QE1), $700bn from November 2010 to June 2011 (QE2) and $810bn from September 2012 to October 2014 (QE3).
Over the same period, the net issuance of US Treasury bonds and notes was a cumulative $7.2trn (of which a $6.5trn increase in marketable debt) and gross issuance of
USTs with a maturity of 2-year and above was $12trn. Hence, since the global financial crisis, the Fed has absorbed a cumulative 28% of net issuance and 16% of gross issuance of USTs, at an average pace of purchases of about $24bn a month.
In terms of the pace of purchases, the second QE2 programme was the largest: in that period the central bank bought about $100bn in USTs per month, equivalent to about 50% of gross issuance and 148% of net issuance. In terms of duration removal, the maturity extension programme (QE3) had the largest effect. When converted into 10-year equivalents, the increase in the Fed UST portfolio was about $1.8trn, and the 10-year equivalent gross issuance over the same period was about $8.3trn, or about 20% of gross issuance.
A EUR500bn Euro area QE would be sizeable relative to expected bond net issuance
Should the ECB announce EUR500bn in government bond purchases to be implemented over a one-year period, as our European Economics team expects, this programme would compare in size to the average monthly purchases of USTs by the Fed during QE3, but it would be significantly larger than the average monthly Fed purchases since the beginning of the global financial crisis. Moreover, given the smaller stock and lower net and gross issuance of government debt in the Euro area than in the US, the programme size would imply a significant absorption of government securities available for private sector investors.
The ECB's stock of eligible Euro area government bonds is EUR7trn (by comparison, the stock of US government securities is about $12trn) and we estimate 2015 net government bond issuance to be around EUR90bn and gross issuance to stand at around EUR800bn (see Macro Rates Monitor, December 19, 2014). The ECB would, hence, buy about 62% of gross issuance of long-term bonds in the Euro area countries and more than five times as much as the net issuance.
Looking across countries, if purchases are determined according to the ECB’s capital key contributions (which is our baseline assumption), the ECB would buy about EUR130bn of German securities, EUR100bn of French, EUR90bn of Italian and EUR60bn of Spanish securities, equal to about 90%, 60%, 43% and 45% of the respective 2015 gross issuance. These numbers are closer to the amount of “supply removal” of the BoJ under the current asset purchase programme. The latter is buying approximately 50% of gross issuance of JGBs and about 90% of gross issuance of 10-year JGBs.
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What's to stop Greece and Spain from issuing more bonds over this period, now that a big sucker^H^H^H^H^H^H^H^H^H volume buyer has appeared on the stage?
in the case of Greece... well, they are still more or less shut out of the "markets"
in the case of Spain... there is the thing that Spain-the-union has little need of it. it's the "federated" bits of Spain that would like to do that, and they are outside "the scope"
and then, of course, there is the little know fact of the EU Fiscal Compact. i.e. balanced budget treaties
But this is where the EU begins to break apart. Who's bonds get bought and how many? Political parties will use this information to get votes and anti-EU parties will be elected.
I already see the headlines: "EU breaks apart for lack of new debt", or "EU breaks apart because member's taxes match expenses"
+10,000
Under the guise of "unity" but really to enrich themselves through increased inflation (the bankster game from day 1) they thought they could circumvent nationalism.
Backfire!
Exponentially increasing paper claims on real goods and services...
where have we seen this before....?
This is number 4 of the series but you can find the other ones on your own. Very good document and outlines who actually throughout history has practiced that "paper claims" scam. Who they are who they are related too and what companies they own or are on the boards of. Very good research here http://www.silvermarketnewsonline.com/articles/4SilverSquelchers_Savoie101714.pdf
Guess what Goldman's Sylvia Ardagna, ECB is useless without Merkel
Merkel runs the show and Merkel isnt going to pay for Greek debt using German taxpayers
"net government bond issuance to be around EUR90bn"
ALL of Europe only totals up to $90 Billion in net issuance for the year? I think I see the problem- these European governments just aren't borrowing and spending nearly enough. We do 4-5X that even on a slow year.
Somebody send over Paul Krugman to explain this to them, please.
he is on the way to ECB, don't worry - 3tn euro in a year incoming 22 january
Dr. Paul Krugman would refuse to visit such a backward continent like ours. He hates the EUR in the same way vampires hate garlic, crosses and pointy sticks
Give him a Charlie Hebdo T-shirt for the trip.
Are Goldman instructing or informing what is going to happen?
Both
One imagines Peter Tosh smokin' an enormous joint of ganja, singin':
Sterilize it, don't monetize it
If you monetize it, yeah, yeah, markets will pulverize it
If they are buying..and I was a politician in a country...I would be selling a whole lot of them.....you can buy a lot of friends with that kind of cash....but that is the whole problem in a nutshell...free money is wrong on so many levels...but that is what will happen until it no longer works....
i pity anyone who didn't btfd. we are due for another six year bull run. you heard it here first.
"...upcoming QE" ??? Is European QE already a given? Why is it that 5 1/2 years ago, ZH doom & gloom depicted an impending collapse of markets and now ZH doom & gloom depicts the impossibility of market decline?
Could this be Goldman floating another QE rumor just to feed the markets? Thought the Germans were really against this.
I expect we will hear from them within a day.
Was it over when the Germans bombed Pearl Harbor? Hell, no!
...and it ain't over now... [/Bluto]
Can this article be written without considering the bonds that the Swiss National Bank may be buying with its massive Euro support trade?
Eine gute Idee.
- We will Create a European Union, but countries don't come in as Equals
- Greece, Italy, Portugal, Spain, Ireland will come in as debtors, as slave nations, as people that always have to catch-up
- How will PIIGS catch up?
- PIIGS can't emerge from Debt without huge capital expansion in equipment, facilities, expenditures,... and a revolution in manufacturing, lol... they will never do this, they will be slaves... or we will take their country
- Probably they will have to hand their country over to us, Germany....
funny theory. perhaps you read too much in the word "union"?
Too many holes in the dike. Europe is in a full-blown deflationary spiral and no amount of ECB QE can fix it.
http://www.globaldeflationnews.com/european-union-continues-to-suffer-fr...
http://www.globaldeflationnews.com/as-early-as-2011-ewis-analysis-warned...
You know, 3 trillion in USD QE equates to a 500 lb bag of quarters for every person in the United States. That is lot of Pacman we should all be playing.
Goldman should know what's going to happen....they're placemen are in all the top CB positions.
The syndicate QE baton is being passed from client state to client state. USA>Japan>ECB as they go around the horn.
Someone has to buy the bonds and it takes printed money to do it, and the effect is to create a global liquidity trap.
It all perfectly fits Einstein's definition of insanity which is to keep doing the same thing and expect different results.
"programme would compare in size to the average monthly purchases of USTs by the Fed during QE3, but it would be significantly larger than the average monthly Fed purchases since the beginning of the global financial crisis."
Sounds like "Team Rockefeller" is poking some polite fun at their bosses there at "Team Rothschild".
this should make Greeks decision easy, drop out of eu., declare a debt jubilee, have Russia, and china on speed dial.