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The Five Key Differences Between The ECB's OMT And The Fed's QEternity

Tyler Durden's picture


With their recently announced additional bond purchase programs, both the Fed and the ECB have added a new chapter to their respective handbooks. While at first glance they are both simply the end-game of money-printing-monkeys, Morgan Stanley sees some similarities but more differences that are critical to understand when judging the awesomeness (or not) of these actions. The ECB’s Outright Monetary Transactions (OMT), in contrast to the previous SMP program, will be ex ante unlimited in size but conditional upon government action. Likewise, the Fed’s additional purchases of agency MBS are ex ante unlimited in size (the monthly pace will be US$40 billion but the program is open-ended) and conditional (though not upon government action but labor market performance). Another parallel is that there was only one dissenting member each in the two policy committees (Jeffrey M. Lacker and Jens Weidmann). However, this is where the similarities end. Looking at the details, the two programs actually differ in five important respects.


Via Morgan Stanley:

First, the Fed’s MBS program is up and running and started last Friday. By contrast, the start of the ECB’s OMT is conditional upon a country going into an EFSF/ESM program or a precautionary program (ECCF), or a country in an existing program regaining market access. Hence, while this is not our base case, there is a possibility that the OMT will never be activated.


Second, while both programs are aimed at unblocking the monetary transmission mechanism, the Fed’s MBS purchases are targeting the mortgage market, while the ECB will buy short-dated government bonds. Both make sense to us, because the origin of the US financial crisis was in the mortgage market, which in the Fed’s analysis requires ongoing support, while the epicenter of the current European crisis is in the government bond markets.


Third, while the Fed’s buying program will lead to a further increase in the central bank’s balance sheet, the ECB plans to fully sterilize its purchases. Note, however, that sterilization is merely a fig leaf to placate German concerns because the size of the ECB’s balance sheet is entirely demand-driven due to its current policy of full allotment at its refinancing operations. Provided they have enough collateral, banks can take out any amount of liquidity they like. Note also that the term deposits which the ECB offered to banks when it sterilized the SMP purchases were eligible as collateral in the refi operations.


Fourth, the conditionality attached to the Fed’s and the ECB’s purchase programs is very different in nature. The Fed has tied its MBS purchases to an economic variable – it will continue until there is a substantial improvement in the labor market, while the ECB has tied the OMT to a political variable – whether or not a country goes into and adheres to an adjustment program. As government action (or non-action) is unusually more difficult to predict than labor market performance, this makes the scope of the OMT much more difficult to predict than the Fed’s MBS program.


Fifth, while the Fed’s action is fully aligned with its dual mandate, which includes ‘sustainable employment’ alongside price stability, there are some – the Bundesbank and the German Constitutional Court – who view the ECB’s OMT as potentially violating the ECB’s mandate, which prohibits direct monetary financing of governments. While the ECB’s position is very clear – it views the secondary market bond purchases, which are aimed at unblocking the monetary transmission mechanism, as in line with its mandate – the challenge coming from Germany provides additional uncertainty about the scope and effect of the program.


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Wed, 09/19/2012 - 13:05 | 2811710 Rapada
Rapada's picture

My first post!! Am I suppose to say Bitchez?

Wed, 09/19/2012 - 13:07 | 2811725 LongSoupLine
LongSoupLine's picture


Wed, 09/19/2012 - 13:21 | 2811763 Kitler
Kitler's picture

The Fed has tied its MBS purchases to an economic variable – it will continue until there is a substantial improvement in the labor market...

Or until unicorns shoot Skittles out of their asses.

Wed, 09/19/2012 - 13:21 | 2811782 Precious
Precious's picture

Rule zero of the fight club:  "Never ask what to say."

Wed, 09/19/2012 - 13:30 | 2811799 redpill
redpill's picture

There are many differences between what happened to the RMS Titanic and the RMS Lusitania, but both of them wound up at the bottom of the ocean, didn't they.

Sink due to overconfidence and arrogance (Fed=Titanic) or sink due to the Germans eventually torpedoing you (ECB=Lusitania).  Why, that allegory worked out even better than I'd hoped.

Wed, 09/19/2012 - 13:47 | 2811891 vast-dom
vast-dom's picture

 what a fucking mess out there..... maybe there will never be a crash.... maybe unicorn shit = skittles = QEi = no crash, ever = PONZI forever 

Wed, 09/19/2012 - 14:15 | 2812054 Zadok
Zadok's picture

Kind of like the victim of a nucle-r blast debating the relative merits of Pluto-nium versus urai-m.
Really! Who cares? The devastation is awful regardless!

Wed, 09/19/2012 - 14:16 | 2812056 palmereldritch
palmereldritch's picture

Added bonus:

It is argued that the sinking of the Lusitania was a LIHOP false flag that dragged the US into WWI which facilitated the collapse of Russia and rise of Communism, created President Wilson's League of Nations (an early world government precursor) and destroyed American isolationism once and for all.

This event was parlayed into multiple dividends which in addition to the above geo-political re-ordering, translated into staggering munition profits and increased taxation for the usual suspects who are no strangers to false flag themselves, past and present....

Woodrow Wilson was re-elected by a hair. He had hased his campaign on the slogan: 'He Kept Us Out of War!'. . . Just five months later we were in it. The same crowd which manipulated the passage of the income tax and the Federal Reserve System wanted America in the war. J. P. Morgan, John D. Rockefeller, 'Colonel' House, Jacob Schiff, Paul Warburg and the rest of the Jekyll Island conspirators were all deeply involved." -Gary Allen, “None Dare Call it Conspiracy”


Wed, 09/19/2012 - 21:59 | 2813639 White.Star.Line
White.Star.Line's picture

Overconfidence and arrogance could prevent you from considering that the Titanic sinking was one of the greatest unsolved murders of all time.......

Thu, 09/20/2012 - 03:27 | 2814081 zhandax
zhandax's picture

Unsolved by whom?

Wed, 09/19/2012 - 13:23 | 2811791 GetZeeGold
GetZeeGold's picture



Or until unicorns shoot Skittles out of their asses.


That crap looks like candy.....but it's not.



Wed, 09/19/2012 - 13:33 | 2811832 whatsinaname
whatsinaname's picture

Asked on earlier thread - if (as I believe) the BOJ has been doing the equivalent of QE for 15-20 years then is the BOJ almost the owner of the entire Japanese bond market ? wondering who owns and what share of the JGB market...

Wed, 09/19/2012 - 13:45 | 2811882 Son of Loki
Son of Loki's picture


Completely dependent on Banker Bonuses.

Wed, 09/19/2012 - 13:34 | 2811833 lasvegaspersona
lasvegaspersona's picture

actually I think the correct answer was ....yes

unless this site has lost all respect for TRADITION

Wed, 09/19/2012 - 14:59 | 2812315 MillionDollarBoner_
MillionDollarBoner_'s picture

U have to earn the right...

Wed, 09/19/2012 - 13:07 | 2811726 francis_sawyer
francis_sawyer's picture

No ~ you're just supposed to get JUNKED & take it like a man... Welcome to Fight Club...

Wed, 09/19/2012 - 13:10 | 2811736 francis_sawyer
francis_sawyer's picture

after that ~ you need to buy a boat... go out fishing in it... take all your gold with you... and proceed to SINK IT...

Wed, 09/19/2012 - 13:16 | 2811757 GetZeeGold
GetZeeGold's picture



My first post!!


If it's your first're suppose to fight.


Wed, 09/19/2012 - 13:15 | 2811743 Dr. Engali
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The 8th rule of fight club.. If this is your first night at fight club you have to fight. Welcome to fight club bitch.

Wed, 09/19/2012 - 13:18 | 2811772 Rapada
Rapada's picture

But. . . but. . . all you guys just say Gold Bitchez a lot and stuff. . . I thought that was how to fit in. . . (ducks)

Wed, 09/19/2012 - 13:22 | 2811785 Vincent Vega
Vincent Vega's picture

Perhaps a better way to fit in here is to find a comment you don't necessarily agree with and respond: Fuck OFF Shit Head.

Wed, 09/19/2012 - 14:01 | 2811977 AnonymousCitizen
AnonymousCitizen's picture

Fuck OFF Shit Head

Wed, 09/19/2012 - 14:05 | 2812001 Vincent Vega
Vincent Vega's picture

Finally. I put a lay up out there hoping the new kid would catch it. But he didn' did. Got to be quicker new kid.

Wed, 09/19/2012 - 14:29 | 2812137 Rapada
Rapada's picture

I was scared!

Wed, 09/19/2012 - 14:39 | 2812191 Vincent Vega
Vincent Vega's picture

Look for comments from RobotTrader and MillionDollarBonus. Reply: Fuck OFF Shit Head to them. You'll get lots of practice and you can't go wrong. Good luck.

Wed, 09/19/2012 - 17:01 | 2812862 mark mchugh
mark mchugh's picture

Warning: Replying "Fuck off shithead" to MillionDollarBonus will only reveal that you are a noob.  MDB is a true comic genius.

Wed, 09/19/2012 - 13:22 | 2811787 Dr. Engali
Dr. Engali's picture

That's only for those proven to be worthy. For everybody else there's fiat.

Wed, 09/19/2012 - 13:36 | 2811844 mayhem_korner
mayhem_korner's picture




Wed, 09/19/2012 - 13:22 | 2811788 mayhem_korner
mayhem_korner's picture



anyone who uses four sets of elipses is too sharp to "fit in"...we want you to bring it unabashed.  "Me too" posts with double (or triple) digit up arrows are usually entertaining but not insightful.  The ones with twenty each way are the ones that people are thinking about.

Wed, 09/19/2012 - 13:28 | 2811807 francis_sawyer
francis_sawyer's picture

 "I thought that was how to fit in"...


 "I would never join a club that would accept me as a member"

~Groucho Marx

Wed, 09/19/2012 - 13:29 | 2811809 francis_sawyer
francis_sawyer's picture

Junk myself for fat fingering the SAVE button...

Wed, 09/19/2012 - 14:37 | 2812126 xtop23
xtop23's picture

If you actually care about fitting in, which I would argue most of us don't, speak your mind and don't be a pussy about it.

If you have something useful, insightful, or thought provoking, lay it out there so that the community can use it.

Punchy rhetoric thrown out there to garner favor is what politicians do. Don't be a fucking politician. The world has FAR too many of those already.

Quality > quantity. 

Just because you always hear "Gold bitchez" doesn't mean that we're all just brainless syncophants that regurgitate shit we heard and haven't done our homework.

Gold is a means to an end. When the game changes, we will adjust accordingly (at least anyone with any sense that is, and admittedly it may be quite some time until a true reset occurs).

Keep an agile mind and learn to think around corners. This is your only true means of surviving in a system bent on reducing you to a ledger entry.

Accumulate physical assets, keep the ownership of said assets to yourself, own a passport and if possible dual citizenship, turn off the goddamned television and use the alternate media while it lasts, own a gun and enough ammo to fuel it, and drink plenty of water while you maintain a high fiber diet.

Constipation is a bitch.




Wed, 09/19/2012 - 13:28 | 2811811 slaughterer
slaughterer's picture

Morgan Stanley ws net short with a ES PT of 1100 going into last Thursday FOMC.  Know who you are dealing with here.  

Wed, 09/19/2012 - 13:32 | 2811825 slaughterer
slaughterer's picture

One day we will wake up and Draghi will be half bald and have a "Ben beard"

Wed, 09/19/2012 - 14:00 | 2811961 Zadok
Zadok's picture

Try adding some value!

Wed, 09/19/2012 - 14:11 | 2812034 Silver Bug
Silver Bug's picture

QE to infinity all around! Look out China should be annoucing a new QE program in the next 30 days as well.

Wed, 09/19/2012 - 13:06 | 2811716 apberusdisvet
apberusdisvet's picture

The real difference is that the Rothschild controlled ECB is seeking totalitarian control over the European sheeple through fiscal contrainst on sovereign authority.  Here in the US, we already have totalitarian control; most just haven't realize it yet.

Wed, 09/19/2012 - 13:07 | 2811720 resurger
resurger's picture

Two heads of the same rotten hydra

Wed, 09/19/2012 - 13:10 | 2811740 mrktwtch2
mrktwtch2's picture

where is america??

Wed, 09/19/2012 - 13:12 | 2811742 LongSoupLine
LongSoupLine's picture

The differences spelled out are ones that are public, and touted through CB media.


The reality is there are no differences.  They both work for the banks.

Wed, 09/19/2012 - 13:13 | 2811747 fonzannoon
fonzannoon's picture

I truly hate Margin Stanley

Wed, 09/19/2012 - 15:01 | 2812322 GetZeeGold
GetZeeGold's picture



I switched to J.T. Marlin.....and I've never looked back.


Wed, 09/19/2012 - 13:13 | 2811748 Vincent Vega
Vincent Vega's picture

Fuck You Bernanke! Fuck You Dhaghi! Sorry I just don't see 5 differences.

Wed, 09/19/2012 - 15:56 | 2812550 earleflorida
earleflorida's picture

"5 Years late and 5 reasons out of 'phase"

a Pythagorean nightmare where the secant'...cosine's the tangent,...

note: which came first... the housing bubble [chicken] or the unemployment debacle [egg]?

answer: everyone knows the chicken came first!

Ps. bond`ing had nothing to do with neither...

Wed, 09/19/2012 - 13:13 | 2811750 Duke of Con Dao
Duke of Con Dao's picture

is this a modern Benito Cereno?

are we Captain Delano to Obama's Babo? 


Wed, 09/19/2012 - 13:17 | 2811766 DavidC
DavidC's picture

"the Fed’s action is fully aligned with its dual mandate, which includes ‘sustainable employment’ alongside price stability".

NO. It's not. Price stability means unchanging, NOT an inflation target of 2%, which is an exponential increase!


Wed, 09/19/2012 - 13:18 | 2811768 mayhem_korner
mayhem_korner's picture



If you scrape up five meadow muffins (cow chips, if you will), and spray paint them all different colors, are they different?

Wed, 09/19/2012 - 13:48 | 2811886 Zero Govt
Zero Govt's picture

clearly not

and we've yet to see bubble Bens fatuous claim the Fed has "innovative policy tools"

all poison dwarf has done is print, thrown money at it

his only creativity is to cover his single policy option in smarmy names, re-branding the same lame one trick pony in a dozen different names

he's a slippery little shit

Wed, 09/19/2012 - 14:23 | 2812100 americanspirit
americanspirit's picture

Hi mayhem_korner - you would probably have to step on them with your bare feet and examine what comes up between your toes carefully. Please let us know.

Wed, 09/19/2012 - 13:22 | 2811786 timbo_em
timbo_em's picture

"both [MBS program and OMT] make sense to us" where I stopped reading. I don't know whether it was Margin Stanley's purpose but this sentence is very cynical. Fucking criminals!

Wed, 09/19/2012 - 13:36 | 2811840 Terminus C
Terminus C's picture


The propaganda is so blatant and unabashed now that I get nauseous very time I read or hear it.

Wed, 09/19/2012 - 13:23 | 2811789 DaveA
DaveA's picture

Many have said that monetary inflation won't cause price inflation because "the transmission is broken" -- banks are not lending out the trillions that Ben has printed for them.

Maybe, but there's another road to Zimbabwe, and that's the EBT card. As food prices rise, EBT allowances must increase or there will be blood in the streets. Today's workers have little bargaining power, so instead of a wage-price spiral, we'll have an EBT-price spiral.

Issuing new EBT cards takes time, so for a while the poor will "have" and the middle class will "have not". If there's any way you might qualify for an EBT card, you should probably get one now. Think of it as an interim currency between dollars and gold.

Wed, 09/19/2012 - 13:29 | 2811817 slaughterer
slaughterer's picture

An EBT card and 1000 shares of AAPL.  The new, QEternitied Normal.  

Wed, 09/19/2012 - 13:33 | 2811834 lolmao500
lolmao500's picture

The one difference between the Soviet Union and America... the language.

Young Persons Called to Private Grand Jury for Owning Books

Just a few weeks ago, an FBI task force raided a home* in Portland, Oregon very early in the morning. They broke down the front door with a battering ram and threw in a stun grenade, which is non-lethal but produces a very loud and disorienting noise and a blinding bright light. The team locked down the building and secured the sleepy, compliant occupants. The operation was one of several which also occurred in Olympia, WA and Seattle, WA, involving some 60-80 officers.

Reportedly, the FBI search warrant was for black clothing, paint, sticks, computers and cell phones, and ‘anarchist materials or literature.’ According to an FBI Domestic Terrorism guide published by, “anarchists are criminals seeking an ideology to justify their actions,” and are “not dedicated to a particular issue.” Common meeting places are “college campuses, underground clubs, coffee houses/ internet cafes.” The implication is that owning “anarchist” literature is enough to indicate to the FBI that one is a criminal – even if that person happens to be a student studying political thought. Or maybe particularly if you are a student – the FBI document states that anarchists are “educated persons of various backgrounds, often students.”

What even counts as anarchist material? Given the vitriolic US political rhetoric of anti-socialism, you might think a book by Karl Marx or about Tommy Douglas would count. What about someone like Shulamith Firestone? Hell, what about Walt Whitman?

Wed, 09/19/2012 - 13:42 | 2811871 Terminus C
Terminus C's picture

This is just a training exercise for the real thing. Training for the police and the subjects (formerly known as citizens)

Wed, 09/19/2012 - 13:36 | 2811842 Inthemix96
Inthemix96's picture

Five key Similarities to these two fucking shithawks bitchez.....

Both are Qe loving, nation wrecking cunts.

Both are slimy little fucking scumbags.

Both are two greasy fucking arselicking appologists for the elite fuckers who control them.

Both have fooled the masses into accepting bullshit as reason.  And destroying the future of us all at their and their masters expense.

And finally.  Both will come to a violent and disgusting end to their tragically cut short lives ( if enough fucking shitheads wake up like)

My two pence worth.                   :-)

Wed, 09/19/2012 - 13:38 | 2811849 Sofa King
Sofa King's picture


"Via Morgan Stanley:

First, the Fed’s MBS program is up and running and started last Friday."


Well, obvioulsy it is...otherwise MS would have defaulted over the weekend.

Wed, 09/19/2012 - 13:51 | 2811853 Zero Govt
Zero Govt's picture

ECB "throw money at it"

Fed "throw money at it"

At what? rotten bankrupt Bwankers

if Morgan Stanley can see a difference they're on something (strong)

roll on the village idiots competition at Davos, Switzerland. Estimated IQ, single digits

Wed, 09/19/2012 - 13:43 | 2811874 slaughterer
slaughterer's picture

MS text intralinea:

ECB: they throw money at our underwater sovereign bond portfolio.  

FED: they throw money at our underwater MBS portfolio



Wed, 09/19/2012 - 13:45 | 2811879 lasvegaspersona
lasvegaspersona's picture

if you are not headed for the exits already you are too late....Ben announced the death of the dollar, why are we still discussing it in the present tense? DENIAL! Grieving comes later.

Wed, 09/19/2012 - 13:48 | 2811893 Itch
Itch's picture

Barroso is taking questions live on youtube for some reason, if anyone is interested in asking him about his banana fetish...

Wed, 09/19/2012 - 13:52 | 2811910 Bastiat
Bastiat's picture

Draghi's deal is a circle jerk.

Ben's is a reach around.

Wed, 09/19/2012 - 13:55 | 2811926 Inthemix96
Inthemix96's picture

Ben bernanks dad to his mother:-

' have you any idea what you have birthed?'.

'no', she says.  'Well I will tell you, you silly bitch.'  Said the enfumed father.

'You have brought into this world a child of desperation.  A child who will in his lifetime destroy the world with his nefarious zionist ways'.  ' He will wreck havok with the worlds finances and bring whoile nations to their knees.'

'And?'  She says.

'Why didnt you let the best part of this baldy chickenshit cunt run down your leg like I told you?'

'Oh?' the silly cow responded while sipping gently from her bottle of gin, all the while injecting heroin into her left arm.......

Wed, 09/19/2012 - 14:09 | 2812021 lostcause
lostcause's picture

The only thing that matters is which currency will crash first?

Wed, 09/19/2012 - 14:12 | 2812036 Vince Clortho
Vince Clortho's picture

If Bernanke stuffs his suit with a Million in FRNs and Draghi stuffs his pockets with a million Euros, and they both jump off the Empire State Building, who will hit the ground first?

Wed, 09/19/2012 - 14:32 | 2812157 AynRandFan
AynRandFan's picture

Neither, they will both float like two Hindenburgs above the clouds in a never-ending blue sky of possibility.

Wed, 09/19/2012 - 14:12 | 2812040 payment expert
payment expert's picture

ECB is trying to protect Euro funds migration away from the bloc, will not really work only provide acomissionon change points

Wed, 09/19/2012 - 14:27 | 2812123 americanspirit
americanspirit's picture

The dollar is backed by the full faith and credit of the US government. Any other questions?

Wed, 09/19/2012 - 14:38 | 2812197 Racer
Racer's picture


Wed, 09/19/2012 - 15:13 | 2812287 debtor of last ...
debtor of last resort's picture

The ECB wil turn to QEternity in due time. And the only thing that will be sterilized is the CRTL-P button. Or Paris will boycot BMW and blaim Uganda for it. Tssss...

Wed, 09/19/2012 - 14:58 | 2812309 Remington IV
Remington IV's picture

love skittles

Wed, 09/19/2012 - 15:13 | 2812378 mt paul
mt paul's picture

the fed should start printing with ink

that disapears after a month or two ..

long parsnips ...

Wed, 09/19/2012 - 15:21 | 2812409 Grand Supercycle
Grand Supercycle's picture

Due to recent central bank intervention and short covering spikes, all these daily charts are extremely overextended & significant correction expected very soon ~ SPX, NZDUSD, GBPUSD, AUDUSD, COPPER, CRUDE, GOLD, SILVER.

Wed, 09/19/2012 - 16:21 | 2812705 hooligan2009
hooligan2009's picture

i still ponder the efficacy of relying on the same trough guzzlers to provide analysis of actions that they themselves are profiting from. It has been clear for some time that people such as Nomura, JP MOrgan, Morgan Stanley and the ubiquitous Goldman Sachs are the very same people who prolong the agony for the rest of us by trying to portray central bank intervention as a solution to a problem that the talk of these very same entities has caused in the first place.

As far as I can make out, there is no correlation between working for a bailed out and bankrupt banking sector and future economic performance or soundness of views. 

Who does this leave? Industrialists, academics or politicians? Hmm. Pretty sure the answer lies in placing monetary (value?) constraints on the decision making process within a democracy. It sure as hell has nothing to do with the other diners at the tax-payers/voters rapidly diminishing trough of available slops..central banks like the ECB, BoJ, BoE and the Fed, or the Riksbank for that matter.

Wed, 09/19/2012 - 17:13 | 2812893 theprofromdover
theprofromdover's picture

Has Benjamin no shame?

Now he tells us he cares about employment??

...and how come he is going use the monthly millions to buy mortgage-backed securities?

Who does that benefit (one guess only required)

...and who is he going to sell them back to (when his magic wand finally works)

and who will call him to account.


Wed, 09/19/2012 - 17:43 | 2813006 Tango in the Blight
Tango in the Blight's picture

This song is dedicated to Uncle Ben and Super Mario:

Wed, 09/19/2012 - 19:38 | 2813329 Snakeeyes
Snakeeyes's picture

Bernanke's QEternity is stupidity, pure and simple. It will crash and burn us.

Thu, 09/20/2012 - 10:12 | 2814829 jonytk
jonytk's picture

the difference is the ECB is more independent from the goverment, since there are 17 different goverments, while the FED is in the bed with the folks in washington and wall street.

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