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Behind The Scenes European Panic As Interbank Liquidity At Worst Level Ever

Tyler Durden's picture





 

Yesterday we reported that in the aftermath of MF Global, and concurrent with Greece nearly allowing democracy for one brief second, European banks had scrambled to put a record amount of cash with the Federal Reserve. Next we get confirmation from the ECB that like in the US, so in Europe, in the absence of any confidence in one another (ignore Liebor, which while up again is and has always been a collusive joke intended to convey bank strength), the only place banks have left to dump money is the ECB. As of this morning, a 16 month high of €275 billion in cash had been parked with Mario Draghi, an amount which is promptly removed from the Keynesian money multiplier myth, and which confirms that there is a behind the scenes liquidity panic unlike anything we have seen since Lehman, and in fact, as the second chart from Sean Corrigan showing ECB fixed and deposit usage as well as Fed reverse repo and overall foreign bank cash parking, the liquidity in the market now from a European point of view, contrary to what broken indicators may show, is the worst it has ever been with nearly $1.6 trillion in liquidity removed from broad circulation and parked with either just the Fed or the ECB. Translated: as goes democracy, so goes confidence.

ECB Deposit Facility Usage:

Combined European liquidity placed with "safe" institutions, ECB and Fed, and removed from broad circulation:

 


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Fri, 11/04/2011 - 07:17 | Link to Comment Irish66
Irish66's picture

Stark is quitting

Fri, 11/04/2011 - 07:23 | Link to Comment Cash_is_Trash
Cash_is_Trash's picture

Howard, Tony or Jurgen? </s>

Fri, 11/04/2011 - 07:25 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

"Here, hold this bag."

"I'm not holding the bag, you hold it."

 

Fri, 11/04/2011 - 07:50 | Link to Comment Schmuck Raker
Schmuck Raker's picture

"Hi guys. What's in the bag?"  -Timmay

Fri, 11/04/2011 - 07:57 | Link to Comment CPL
CPL's picture

"Super awesome secret is what's in the bag friend!!  Just...here...take a peek."

Fri, 11/04/2011 - 08:40 | Link to Comment Sudden Debt
Sudden Debt's picture

It's so dark in the bag... I can't see the bottom... THAT'S AWSOME!!

 

Sat, 11/05/2011 - 19:52 | Link to Comment therealmonty
therealmonty's picture

"Just shut up and hold it...I don't care if it stinks or its heavy."  

"Hey, where are you going?"

"Just hold the bag ok, I'll be right back, seriously, I'll be back in a minute."

"Then why are you getting on that LearJet?"

"Sucker!"

 

Fri, 11/04/2011 - 07:52 | Link to Comment DormRoom
DormRoom's picture

It's not a multiplier myth.  There's a basic accounting identity that underlies Keynesian economics.  aggregate income = aggregate output . As a larger share of income is not consumed, but saved, less national product is produced.  Thus firms tend to layoff ppl over the long run, as an economy advances, and more average wealth is created, and saved.  As the number of  lay offs increase,  aggregate demand swoons, feeding a negative feedback loop (no job -> less consumption -> less output -> more layoffs).  A way to mediate this is for  savings to be directed to entrepreneurs, who start new entreprises, employing ppl, buffering the effects of increased savings.

 

Therefore as more money is parked in savings account and not distributed to small-medium businesses, which hire new workers, jobless rates will increase.  This too has a multiplying effect in so far as redistribution of savings is a reflexive mechanism to mollify the negative feedback loop of increased savings (the paradox of thift).

 

Therefore if 1.6T is parked @ the ECB, and the jobless rate is increasing, capital  is not flowing to new startups, which will hire new workers, whom will consume more, and collectively push up aggregate demand.  This is the underlying assumption of Schumpeters's creative destruction.

 

This has implications for emerging markets, as a lot of Euro bank lending is directed there.  It also may be  a partial explanation for deceleration of emerging market output in the next 6 month.

 

It's vital we look @ the mechanism for the redistribution of capital (finance industry), because if breaks down, or it is inefficient (prioritizing short run over long run), economies will falter.

Fri, 11/04/2011 - 08:01 | Link to Comment CPL
CPL's picture

That would be true if that were a surplus, but you fail to note that the entire pile is all debt accumulating interests.  First time I've heard of a Keynesian apologist that stupid.  And a socialist to boot, I knew banks ran red with the blood of Marx in their veins. 

So when should we start handing out the debt to the public?  Today, tomorrow?  How about next week?

 

Maybe you'll take the lion's share of it, you seem to genuinely think there is something good in all this so since you opened your mouth...

 

 

Fri, 11/04/2011 - 08:01 | Link to Comment gmak
gmak's picture

I would argue with the Keynesian economics and say that the savings provide capital for entrepreneurs to increase productivity (new machines), or build new businesses - both of which provide more goods, or the same goods at cheaper prices. The more goods approach from new businesses suggests increased employment - which will increase both spending and saving  = a small virtuous cycle.

I agree that the 1.6T parked at the ECB does not get used as capital. It is simply safe keeping for what will be needed to fill the hole that exists behind the accounting fraud that is impaired loans on all the banks' books.

 

If the "finance industry" breaks down, there is still a solid local mechanism for capital distribution called savings and loans, or community banks. No need to shuffle paper through the investment banking skimmers.

Fri, 11/04/2011 - 08:12 | Link to Comment CPL
CPL's picture

You must be new here as well,

 

http://www.youtube.com/watch?v=LyePCRkq620

Fri, 11/04/2011 - 07:19 | Link to Comment Fips_OnTheSpot
Fips_OnTheSpot's picture

touch the sky..

Fri, 11/04/2011 - 07:25 | Link to Comment spankfish
Fri, 11/04/2011 - 07:22 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

The panic is all too visible, in times like these nothing "behind the scenes" stays there for long.

Fri, 11/04/2011 - 07:23 | Link to Comment qussl3
qussl3's picture

Does interbank still matter when all banks that matter can just go to either the ECB or FED and get whatever liquidity they need?

Perhaps no banking collapse but someone else gets squeezed.

Fri, 11/04/2011 - 07:23 | Link to Comment Mongo
Mongo's picture

Even internet is slowing down due to the sucking up of 1s and 0s

Fri, 11/04/2011 - 07:25 | Link to Comment HD
HD's picture

There is no such thing as two...

http://www.youtube.com/watch?v=MOn_ySghN2Y

Fri, 11/04/2011 - 07:23 | Link to Comment MindTheGAP
MindTheGAP's picture

The Greek MP Panos Kamenos revealed that DEXIA gained 10bn euros by the Euro exchange because of the announcement of the referendum by GPap. Note that the management of this bet was in the hands of UNIGESTION for which one of the strategy designers is the brother of GPap, Andrikos Papandreou! So he had internal informations from his brother! These clowns should be in jail!!!

Have a look at the following

http://translate.google.gr/translate?sl=el&tl=en&js=n&prev=_t&hl=el&ie=U...

 

Fri, 11/04/2011 - 08:01 | Link to Comment agent default
agent default's picture

Insiders Bithcez!

Fri, 11/04/2011 - 07:23 | Link to Comment HD
HD's picture

I'm voting "No" on Proposition ENDLESS BS this November...

Fri, 11/04/2011 - 07:27 | Link to Comment Hansel
Hansel's picture

Didn't you hear?  They just cancelled the vote.  Feel free to fill out a comment card though, because your opinion still matters...

Fri, 11/04/2011 - 07:38 | Link to Comment HD
HD's picture

WHAT?!  Damn it, I wanted one of those "I Voted" stickers, like they give kindergarteners little gold stars for coloring in the lines.

Maybe they will give out "I was denied my vote and all I got was a devalued currency" T-Shirt. Those would be worth something on eBay.

Fri, 11/04/2011 - 07:24 | Link to Comment pendragon
pendragon's picture

anyone notice that europe is already deep in recession witness today's disastrous pmi readings. but clearly fundamentals are irrelevant to the euro traders just whether or not greece has a referendum

Fri, 11/04/2011 - 07:25 | Link to Comment Irish66
Irish66's picture


Yesterday UK treasury announced they are making contingency plans for the fall of Euro, also Sarcozy's comment breakup of Euro means will definietly result in EU and imminent recession due to Greece crisis, all these events and comments make me think Euro is not going to survive for the whole of 2012. comment by Himaz edited by Reuters_RossChainey 6:30 AM

Fri, 11/04/2011 - 07:29 | Link to Comment Hansel
Hansel's picture

But when American PMI or ISM readings miss, the groupthink is to flock to dollars.  Why can't the euro crowd play the same game?

Fri, 11/04/2011 - 08:14 | Link to Comment Stax Edwards
Stax Edwards's picture

Yes.  European recession seems unavoidable at this point.

Fri, 11/04/2011 - 08:42 | Link to Comment Sudden Debt
Sudden Debt's picture

Yes.... I expect the true Depression to start in about 7 weeks... that's when my mother in law comes over for the holidays....

 

Fri, 11/04/2011 - 07:24 | Link to Comment Boilermaker
Boilermaker's picture

And the XLF goes up, and up, and up, and up.....

Wierd.

Fri, 11/04/2011 - 08:48 | Link to Comment sumo
sumo's picture

Thanks for the heads up. Stink bids locked and loaded.

Fri, 11/04/2011 - 08:58 | Link to Comment sumo
sumo's picture

http://www.reuters.com/article/2011/11/03/us-mfglobal-margin-idUSTRE7A27...

Call it the mother of all margin calls: Up to 50,000 former customers of bankrupt broker MF Global must find some $1 billion in additional collateral almost overnight, or be forced out of their trades.

 

Come Friday, with the mass transfer of commodity trading accounts from Jon Corzine's fallen firm to six of its erstwhile rivals, margin clerks will be wrapping up a reckoning of how much additional money is needed to cover millions of positions. Clients who can't quickly meet their margin will have to liquidate, making for a tumultuous day's trade....

 

Fri, 11/04/2011 - 07:24 | Link to Comment PY-129-20
PY-129-20's picture

Guy Sorman argued in Le Monde that G-Pap was trying to minimize the risk of a marxist revolution or some other authoritarian movement, given the modern history of the country. Well, I wonder how that will be seen now, since there is no referendum at all.

 

Fri, 11/04/2011 - 07:45 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Authoritarian movement?! There is nothing to suggest a Marxist or 'authoritarian' movement in Greece or elsewhere for that matter. Exactly the opposite, counter-authority. Put down shitty articles and wake up son. 

Fri, 11/04/2011 - 07:54 | Link to Comment PY-129-20
PY-129-20's picture

I was just summarizing his article, not agreeing with him; wanted to add a viewpoint to the discussion.

Fri, 11/04/2011 - 08:11 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

The propaganda/rumor/blame that is starting to emerge in the EU media against the happenings in Greece is absolutely insane.

There are no viewpoints, at least not 'objective' ones, everybody has something at stake here and Le Monde is no different.

Fri, 11/04/2011 - 08:17 | Link to Comment PY-129-20
PY-129-20's picture

I agree with you. It's sad to watch this. See, for years I was a reader of German ZEIT - but not anymore. Once it was one of the strongest democratic papers here and now it's just cheap EU propaganda. Somehow it is ironic - because the only 'authoritarian movement' is within the EU itself.

It even dawns to people that were in favour of the EU here.

Fri, 11/04/2011 - 08:31 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Perhaps we're in for a grim state of affairs but I fear we're going to see the ugly nationalism rise again in Europe. Germans are at fault, Greeks are fault too for not holding their own governments accountable for a good decade or so. All because the credit was flowing and now that it's reversed the real perps are trying to confuse who the blame falls on.

Fri, 11/04/2011 - 10:29 | Link to Comment QuietCorday
QuietCorday's picture

Counter-authoritarianism against a "regime" very easily creates an environment in which a new authoritarianism is born that ends up being far more hardcore and authoritarian than the previous state of play. Take Revolutionary France, for example, or post-revolutionary Iran, or the biggie -- Germany's NSDAP.

It is really worth remembering that many youths in the Nazi party thought they were "revolutionary socialists", fighting against the old paradigms of both Weimarism and Imperial Germany; in the beginning, they were counter-authority until they became the authority -- and we all know what happened then. Laurence Rees underscores this in one of his interviews with a former Nazi party member. 

The thing with Greece is that the spectrum of political opinion extends far wider than in Britain or the US and is much more radical -- to the extent, there are right wing tavernas and left-wing ones in some towns, and there can be a lot of political graffitti, depending on where you are. I lived and worked over there in the noughties, and my local cobbler had a picture of Lenin on his shop wall above the counter -- now I have travelled and worked all over Europe and the ME, and I have never seen a shop keeper openly display a picture of Lenin, unless he/she is running a Soviet "theme" bar. Again, the right wing in Greece extends very far to the right, to almost jackboot fascist.

In chaos, Greece is a place where, I would suggest, all bets are off.

Fri, 11/04/2011 - 07:25 | Link to Comment HITMAN56
HITMAN56's picture

Let it burn already

Fri, 11/04/2011 - 07:26 | Link to Comment knight99
knight99's picture

Euro strength in the face of this liquidity crisis is stunning. Hard to be right on all the macro calls and still be loosing money shorting the fking euro.

Fri, 11/04/2011 - 07:28 | Link to Comment Peter K
Peter K's picture

Patience is a virtue. And so are manageable positions:)

Fri, 11/04/2011 - 07:32 | Link to Comment Hansel
Hansel's picture

America had a 'liquidity' (actually solvency) crisis in 2008 and everyone panicked into dollars.

Fri, 11/04/2011 - 07:27 | Link to Comment EL INDIO
EL INDIO's picture

The stress is also visible in the GSR which is above 50 after it went down to the low 30s earlier in the year.

Gold outporforming Silver is usually a bad sign.

Fri, 11/04/2011 - 07:37 | Link to Comment qussl3
qussl3's picture

Exactly.

Although COT positioning is wildly bullish, almost every major economic bloc is going backwards, what that would do to ratings might be enough to push Italy into the drink and in the process drag France with it.

There is no way Germany can bail everyone out.

They will print but not before its politically acceptable.

I think we may see GSR 60 before 40.

Fri, 11/04/2011 - 07:44 | Link to Comment EL INDIO
EL INDIO's picture

I think so. a GSR of between 60 and 70 would probably correspond to silver around $20. This would erase all 2010-2011 gains not only for silver but possibly for all commodities. At that point we may see some fed action.

Fri, 11/04/2011 - 07:51 | Link to Comment qussl3
qussl3's picture

That's exactly what China wants too, although they wont say it.

The pretzels they are turning now is rather amusing.

Fri, 11/04/2011 - 07:48 | Link to Comment max2205
max2205's picture

Oh newer and more colorful charts. How ARE they keeping these markets up. The morgue is closed, full of bears and leveraged shorters

Fri, 11/04/2011 - 08:11 | Link to Comment Sudden Debt
Sudden Debt's picture

It's been 11 months since I shorted any stock... this week I bought some and I'm down 12% already...

Again it's a reminder for me to fucking stay out of this market....

 

Fri, 11/04/2011 - 12:14 | Link to Comment LongBalls
LongBalls's picture

I agree. If you are not creating the information in this circus stay back. Way back. Fires are nice because from a distance they warm you. Jump in and what was once warming turns into pure hell.

Fri, 11/04/2011 - 07:58 | Link to Comment somethingelse
somethingelse's picture

Over the past 60+ years we have gone from making the world safe FOR Democracy to making the world safe FROM Democracy.

Truly twisted times.

Fri, 11/04/2011 - 09:13 | Link to Comment Are you kidding
Are you kidding's picture

Because "democracy" was a lie...something they told us we had...but didn't.

Fri, 11/04/2011 - 08:08 | Link to Comment Sudden Debt
Sudden Debt's picture

 

 

WE DON'T NEED NO STINKING LIQUIDITY! WE RUN ON OLIVEOIL AND SHEEP!!

 

Fri, 11/04/2011 - 08:19 | Link to Comment tongue.stan
tongue.stan's picture

ah, july 08, a time of innocense, of hope, of unicorns and skittles, when reality made a hard left turn, and we ended up in this ditcj, bleeding and in shock.

 

we'll always have our memories

Fri, 11/04/2011 - 12:31 | Link to Comment merizobeach
merizobeach's picture

"we'll always have our memories"

 

I don't know if that worked out so well for Winston Smith.

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