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Goldman: "ECB Will Have To Go Big"
Early last week we presented something rather shocking: a note by Goldman Sachs suggested that as a result of the ECB's QE failure to push the EUR lower and with bond yields having risen instead of falling since the launch of the ECB's QE in March, and perhaps due to a perplexing conflict between the ECB and the Bundesbank when it comes to debt monetization, a Greek default sparking contagion blowout risk, not to mention a "seven big figure" tumble in the EURUSD, may be just what the ECB needs.
On one hand, the Goldman assessment was not surprising: after all the bank's top trade for 2015 has been that the EUR will go much lower from current levels so in many ways it was self-serving. But, what's far more stunning is that Goldman, accurately, assessed the ECB's needs in light of what is increasingly seen by many as a QE program that is faltering just 4 months after its launch, and the direct implication was evident: for all the posturing and bluffing from Greece that it won't be blackmailed, it may have fallen precisely in a trap set by none other than the ECB.
The only hurdle was getting the Greeks to accept the blame for the failure of the negotiations which happened, at least in the perspective of the Eurozone, when Tsipras announced the referendum after midnight on Friday. Merkel herself admitted as much earlier:
- MERKEL SAYS GREECE UNILATERALLY ABANDONED SUCCESSFUL TALKS
In other words, when it comes to Europe, Greece lost the blame game, and just like the Ukraine civil war last year, became an unwitting catalyst greenlighting Germany's concession to ECB QE, this time it may be Greece that launches the next step in the ECB's master plan: not just QE but more QE.
This is precisely what Goldman's Franceso Garzarelli, co-head of macro and markets research, admitted earlier today in an interview on Bloomberg TV, when he said that the ECB "will have to go big" if the situation in Greece worsens and leads to wider peripheral bond yield spreads.
He added that a close call or "no" vote at referendum will cause spread widening which as a result of the complete lack of bond liquidity borne out of the ECB's intervention and soaking up of government bond collateral, "the market is not deep enough to accommodate a rotation in risk at this point in time."
How ironic: what Goldman is saying that the more the ECB intervene, the more it will have to intervene. Which, of course, is very convenient for all those who stand to benefit the most from more ECB - entities such as Goldman Sachs...
In terms of specific markets, Garzarelli said that the 10Y Italian yield at 3% would be a sign ECB may move. He added that the market is currently “frozen” with Italy-Germany spread trading in a range because the direct risk from Greece is low, i.e., "if you have Greek risk on at the moment it’s because you want it"; because there is hope of an agreement and because expectation the ECB will limit contagion. The clear circularity of the last argument is too obvious to even note it.
And perhaps just to emphasize Goldman's point, earlier today another (ex) Goldmanite, this time the one in charge of the Bank of England, Mark Carney, directly refuted Obama who said Greece is not a "major shock" to the US economy, admiting this morning that "the outlook for financial stability in the U.K. has deteriorated in recent days as the crisis in Greece intensifies, underscoring how the Mediterranean nation’s debt troubles are reverberating outside the eurozone."
As the WSJ reported, when "presenting the BOE’s twice-yearly Financial Stability Report, the central bank’s governor Mark Carney said the risks associated with Greece and its failure so far to reach a deal with its international creditors have grown acute, and threaten to trigger a selloff in financial markets that could ripple through to the wider global economy."
Mr. Carney told reporters that although U.K. banks’ direct exposure to Greece through loans and deposits is minimal, that doesn’t mean the British economy would necessarily be immune to the fallout should Greece exit the eurozone.
“The situation remains fluid, and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Mr. Carney said. That could ultimately hurt the confidence of businesses and households in Britain, he said.
The BOE has been working with the U.K. Treasury and authorities across Europe to draw up contingency plans to shield the U.K. economy from harm, Mr. Carney said, although he declined to elaborate. He did say regulators have in stepped up their scrutiny and engagement with the U.K. branches of some Greek lenders.
On Wednesday, U.K. Treasury chief George Osborne said Britain is hoping for the best but “preparing for the worst.”
“We stand ready to do whatever is necessary to protect our economic security at this uncertain time.”
Conveniently, if only for all those 0.01% of the economy who benefit directly from QE, so does the ECB: it is, in fact, ready (and would be delighted) to "go big"...
.... in case Greece votes "Oxi" on Sunday which would mean that, for the second time in the 21st century, Goldman wins and Greece loses.
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Will unlimited debt ever matter? I guess not if no one believes in the existence or value of collateral.
Go for it. Send that Tsunami around the world.
Secret deal with BRICS?
I pine for the good old days, when money was scarce, you had to work hard to get it, and borrowing it came with a feeling of shame attached.
Or at least it was a calculated risk. You weighed real interest rates, terms and consequences of default against what you hoped to achieve. There were real risk-benefit calculations.
Government has decided that borrowers are more important and to be favored. It is probably just a coincidence but governments happen to also be the biggest borrowers in the world. Just chance, I am sure.
Is this the same Bank Of England that panic sold all of their gold at $300 an ounce?
https://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002
Yup. And I'm just waiting for them to sell off all the gold they have remaining any time now. The best indicator of a bottom of all time.
The only problem is that Carney is there now and he is way too sharp to let that happen again. Too bad, the Bank of England has been quite helpful in nailing the gold market.
BTFDs
QE ad infinitum DOW 25,000, Helicopter card board box mortgages and 84 month sub prime scooter loans. Lend till there is no one possible left. This is the reason for unfettered illegal immigration
Capitalism WAS a GREAT idea and worked right up until the banksters hijacked it and raped it right down to the marrow of its bone.
The BOE is full of Carneys... Yes, the juggling type.
75% of the British economy is service based, so it's no surpise they're shitting tungsten bricks.
Since Hudson is advising the Greek government, it would be wise to listen:
A referendum is necessary to give Greek Government legal power. All money is law.
A No vote will give the Government a political mandate, which then gives them power to wrestle with the Troika. A successful No vote will have far reaching ramifications. Ultimately, the European money system and the tax systems will be altered. Both fiscal and monetary policy will come under new law, and the new laws will not be friendly to parasitic financial rentiers.
____________
http://michael-hudson.com/2015/06/greece-on-behalf-of-europe/
“And it’s begun to backfire this week, because what they show is that remaining in the Eurozone itself is pretty hopeless, financially. And the leaders of the Syriza party have said, look, we’re not only fighting for Greece, we’re fighting for all of Europe. And what we want to do is save Europe from austerity. And we want to save Europe by having a real central bank whose role is to create money, to spend money into the economy. We want a central bank that doesn’t give money to banks. We want a central bank that pays for government spending and rebuilding the Greek economy. And we need to be out of the Eurozone in order to do that.
Yes. I mean, they’re talking about what–a lot of debts are going to be canceled. Not only to the European banks, but we’re talking about a domestic debt holiday very much like Germany’s economic miracle, in 1948 the Allied monetary reform, where they canceled all the internal German debts except for the debts that employers used for wages. We’re talking about a huge debt write off. But you don’t want to make real estate owners suddenly owning their property free and clear. So we need a tax system that not only is going to stop the tax evasion by the oligarchs who have used the banks to avoid it.
We’re going to take away the tax deductibility of interest payments, so that they can’t pretend to expense all their profits and interest, and we’re also going to have a rent tax. For what we’ve privatized already, we’re going to tax the economic rent to recover for the country what these owners didn’t create, like the phone systems that Carlos Slim made in Mexico that Bill mentioned before. We’re going to collect the economic rent fully in a tax system. So financial reform is going to go hand-in-hand with tax reform, and that’s what terrifies the Europeans. Because they say, wait a minute, all of the money that you call profits is actually rent extraction. It’s all exploitation. You can’t stop exploitation, that’s what our financial system is all about.”
the fact that market bounced back from the brink on Monday the 29th means that insanity prevails. It will keep on building until the world hits crisis mode. The Central Banks will be to blame this time.
What could possibly go wrong when we:
Punish the savers.
Honor the borrowers.
The entire Nato Helicopter fleet is on standby ready to drop free money on the banks
I hope they end up dropping pallets of cash on the bankers...
crushing them in the process.
I too like free money. The banks keep sending me these 18 month free interest credit cards and I keep taking them. Each and everyone one states though, "that if I miss a payment, which is what they are really banking on," that the interest will shoot immediately up to 18% 19% 24% 29%.
My gig is to keep the charges low so that I can pay it off at anytime and on the 18th month and a day chuck the card into shedder and look for another interest free for 18 months card.
You have to be totally out of your mind to pay a bank interest when they are getting it for nothing.
And it has started: Indonesian ban on foreign currency payments comes into force
Very interesting...thanks for posting. You can safely BET that story will never appear in Bloomberg or CNBC...
".... in case Greece votes "Oxi" on Sunday which would mean that, for the second time in the 21st century, Goldman wins and Greece loses."
Well, SOMEONE must be the idiot taking the other side of Goldman's bet. Such a fool DESERVES to lose...
Lol @ "market selloff"
I've been drinking (yeah, big surprise).
Vote NO Greeks! No, no, no.
No to the IMF
No to the EU
No to the ECB
No to all the rapacious behavior of the past.
I drink tonight to GREECE! The beginning of the end... and the end of the NWO.
Make mine a double.
B of E - why - isn't that Nathan Bauer's bank?
CDS? I think a bunch of people bought paper that will never pay off.
Everyone stay long and no one gets hurt.
Mark Carney, grandson of the Honeymooner's sewage worker Art Carney, still tells the family bankers to live by the original motto: "Together we stand, shovel in hand, to keep things moving along...".
No! If BOE is threatening that Greece will take it all down, who the fuck made it so suseptible to the fall down, ahem BOE, EURO FUCKS, EVERY OTHER BANK IN THE WORLD THAT IS GOING TO MAKE ALL OF US MUCH LESS RICH!
Honestly, if a bunch of ISIS dudes walk into your local BOA branch and go dirty, you really gona give a crap!??
Banksters need to hang all the way up to the FED!
Curiously....
The ECB has unlimited bond purchasing power to prevent a Greece contagion.
Funds to help Greece, however, are quite limited and must be negotiated at every turn.
I guess none of them have ever heard the saying that an ounce of prevention is worth a pound of cure.
But then again.... when it's fiat money ... an ounce and a pound are both the same .....
The statement from Bank of England sounds like a political blackmail to Greece over a financial crisis created by Western financial institutions in the first place.
You go Greece! Greece is showing the way! Hopefully Americans will wake up too! Time to throw the corrupt bankers in jail.
-------> https://youtu.be/dwGC2is1DGw?t=4m44s
Mabee USA & UK should bomb Greece with sacks full of their currencies.
Dollar Dollar Dollar
Pound Pound Pound
----
Anyway they can print more of it anytime
Merkel "
There were so successful those talks that Tzipras was not impressed .
Merkel that slave of the CIA doesn't seem or doesn't want to understand that Greece cannot repay a debt that enslaves many
generations . If Tzipras wins with the no vote.... he shoudl tell the EU criminals " don't call me ..... I will call you .... assholes " .