99% Demand ECB Bond Purchases
#888888;">Submitted by Peter Tchir of TF Market Advisors
99% Demand ECB Bond Purchases
Well, about 99% of the world’s bankers, politicians, and finance ministers are demanding that the ECB step up its purchases of sovereign debt. Basically anyone who will make money, gain power, retain their jobs, etc., has voiced their desire to see the ECB change the rules yet again, and grow their balance sheet to support the sovereign debt (and banks) of nations that are insolvent or bordering on insolvent.
The only problem, so far, is that the country with the money and credibility is still saying NO. German 2 year bonds yield 0.34%. That is a fraction of the ECB’s overnight rate. France, by comparison trades at 1.37%. Maybe someone should listen to the one country that has been able to manage its credit?
The issue seems to be print and all is good, or don’t print and risk disaster. Neither of these views are necessarily true. Without a doubt, printing, and buying massive amounts of sovereign debt, would give a short term benefit to the markets and to the politicians. Yet, there is no evidence that it would help longer term. The EU and ECB have changed, bent, or broken rule after rule, and the consequences have been universally bad. They let countries in that didn’t really meet the criteria. They let annual budgets slip. The ECB changed rules so that they could lend to countries and banks that were below investment grade. Every time they have broken a rule to get a solution to a “temporary” problem, it has turned out that only the solution is temporary.
These rules were designed for a reason. They were done when markets were calm in order to prevent a disaster. Rather than sticking to the rules, which may have prevented a disaster, they have run roughshod over the rules and made the problem worse and worse. Greece not being allowed in would have been good long term. Not allowing annual deficits to go above agreed amounts would have been good. It is even now clear that letting Greece default in the summer of 2010 would have been good. Instead, they have spread the problems around, given no real reason for a country to fix their problems (most of Greek bailout money gets paid back to the ECB and EU banks), and dragged country after country into the mess. Spain is back to close to 6% in 10 years and France has made so many problems and demonstrated so little respect for lenders that it now risks joining the cusp countries.
Germany realizes that once this rule is broken, there is no going back. Sarkozy, Obama, Putin, and others have all crossed the Rubicon and are waving Germany over, telling them its not so bad. The country with the most to lose by breaking this final rule is going to think long and hard about it.
I have seen many people explain that they need to print money to save the currency. The reality is that “printing” and “saving the currency” have rarely been used in the same sentence. I understand the logic in this case, but I am left with a nagging doubt what this will do longer term. And that is the main problem with “printing” their way out. In spite of universal demands to print, I have not seen a compelling case that analyzes the potential downside of printing and how to address them. For once, Europe needs to pause, and figure out what the repercussions of their actions will be. Is inflation real? Will the ECB be able to print so much money without affecting the entire system. Will they need to move from sovereigns to banks? Is there a course that might not be as appealing short term but be safer long term?
The EFSF is a prime example of what Europe has been doing wrong. Not since Obama was handed the Nobel Peace Prize has anything received so much premature unwarranted praise. The EFSF (in all its forms) is always announced with great fanfare, but it is never designed to work. It is designed to sound good, but not to be implemented, and it has never been clear to me, that even if it was implemented, that it would work.
The EU, not just Germany, needs to sit back and figure out what can really be done. What are the options. What are the risks and benefits of each path. There are 10 countries that are members of the EU but don’t use the Euro. There are options. Some may be more painful than others in the very short term, but some lead to a path that is sustainable, others just get us through one more bonus cycle and maybe some elections.
It may also be worth seeing how the technocrat puppets actually perform before jumping all in as well. The markets are happy so far, but we haven’t really seen a reaction from the people, and as initial rhetoric and fear starts to subside, the realizations that leaving the Euro may have more positives than negatives, could change political sentiment in a hurry.
(8 votes)
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Those god damned Germans! Always screwing things up for the fiat clan.
Those damn Germans (politicos) lie thru their crooked teeth as Angela attempts to pull off what many before her failed to do.
When does hyper deflation start?
When libor locks up and the markets fall to where they should be, which is 1993 levels now. Longer they keep pushing this the more wobbly it all becomes. At least Oil and coal is catching up to destroy any capital that is being created.
Funny thing is oil and coal will keep rising against whatever the human herd throws at oil and coal and vapourize anything the central bank throw into the market. Energy right now is very cheap.
Dont worry, if the Germans dont step up the IMF will.
We will all be saved...
Imho there's nothing what could be done at this point
just sit down , relax , look at slow-motion crash
'Basically anyone who will make money, gain power, retain their jobs, etc., has voiced their desire to see the ECB change the rules yet again, and grow their balance sheet to support the sovereign debt (and banks) of nations that are insolvent or bordering on insolvent.'
That's the true power of the 99%!
#occupy sanity.
what would Jon Corzine do ?
so that what Jamie Diamond bracelet means ....WWJCD ?
Motitize and taxpayerize all the losses banks and big investors should take. Sure makes cents....
Excellent post! Well done, Mr Tchir.
Oil and PMs will jump 20% in one week when they announce (or stealthily) start printing.
followed by margin hikes due to "volatility"
Obviously there'll be an "Economics Prize" for Mr. Ponzi soon ... as well .
EFSF = European Financial Stability Farce
The Euro needs to be devalued to prevent Europe from falling into recession. The US is winning the export war right now.
The obvious end game for Germany is to step up to the plate (geo-politically) and become a stalwart defender of democracy, like the United States. They should augment their military program so it becomes the second leg to stand on, after the United States. Britain will make the structure stable like a three-legged stool, but clearly can only sustain a supporting role.
Within the EU, the Germans should drag things out, buying time for the opposition forces within the various troubled member states of the EU to sort out how they want to bite the bullet and realign their economies to something that is sustainable. I do not expect all troubled EU states will address their internal troubles with common sense. Hence, the need for a strong military presence to mitigate externalizing the blame for various bad economic decisions made by democratic decision-makers.
It's time to act like adults. No more "99" Luft Balloons.
Politically, Merkozy are both gone. Sarkozy will be gone because he does not have any meaningful ability and Merkel will be sacrificed to buy time. Merkel will make EU decisions based on "compassion" which can be withdrawn later (due to the letter of the law not being applied by troubled EU states). The plan "B" is to renege on any commitments made to sustain those states who in turn reneged on commitments to use common sense within a common market.
There will be a put back in that all troubled states will stew in their own juices. EFSF commitments about picking up the slack when a troubled state reneges on their ability to pay their share will go the way of the dodo bird.
... interesting times are ahead...
But look at the quality of the people demanding Printing: Bankers, Politicians. All honest! sincere! straight! reliable! truthful! Pillars of society!
Surely they must be right.
http://www.youtube.com/watch?v=xq3BYw4xjxE&feature=youtu.be
For me it is hilarious to hear all these so called (UK/US) "experts" in the MsM demanding the ECB print money and buy debt! Did they not look at their own finances for a while?
Detroit will have a $150 million budget shortfall by early next year....Conveniently forget about that did we Mr. MsM?
I think the Euro will survive. IMO even if a country defaults, they will still not be kicked out of EU, or forced to use a new currency of their own.
It's the banks that have let them get this far into debt that are the ones in trouble....