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Jim Grant: "The ECB Is Now Implementing The MF Global Trade"
To print or not to print: the choice of whether to open the European Pandora's box, which as we suggested two months ago is an interesting but ultimately moot thought experiment, has suddenly become the only talking point for TV pundits desperate for eyeballs and suckers to buy their books, who are now experts not only on monetary policy but European monetary policy. And while 99% of these empty chatterboxes should be promptly muted, one person whose opinion we value in any regard is that of Jim Grant. Earlier today, with Bloomberg TV's Deirdre Bolton, he discussed not only the expected ECB response to the ever worsening contagion (while the ECB bought Italian bonds in the open market, and potentially primary against its charter, it is prohibited from buying French bonds which is why the OAT-Bund spread closed at record wides), but all the other developments in the insolvent continent. Here are some of the key sounbdbites, and, of course, the full clip.
On the three thread by which the world currently hangs:
i) by the financial probity of Italy
ii) by the determination of Greece to implement austerity measures
iii) and by the responsibility of our money spinning central bankers
"These are very slender threads indeed."
On what the ECB will do:
The ECB has expanded its balance sheet mightily under Trichet. We have a new leader and we have a new imperative. I dare say Europe is going to print money.
On central bank monetization and its implications:
The Italian yields did not fall on their own. It raises questions of overall integrity of market prices. In the US the Fed has nationalized the yield curve. In Europe much the same is going on: the SNB is expanding its balance sheet at astonishing rates of speed. The world over there is seeing immense money printing and there is a huge race to debase on the behalf of the sponsors of paper money.
Central banks are insolvent:
The ECB has a ratio of non-AAA rated assets to equity of 14 to 1. What the ECB has been doing is stepping in where private money fears to tread. In the private sector we call the heading for trouble... The New York Fed is leveraged 100 to one.
And the kicker analogy which is absolutely spot on:
The ECB is now implementing the MF Global trade.
All this and much more in the clip below.
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Grant, excellent as usual. His tie was at attention, must have been the hot chick.
Grant also made a good observation about Bernanke speaking with the optics of the military backdrop. Kinda creepy. Thoughts on that:
1) He must want to give the impression the military is on his side, highly unusual
2) resent Bernanke using our troops as props, since he really sees them as nematodes
3) insulting that private bankers would try to suggest they have any authority over US troops
4) The Bernank is mistaken if he thinks the military will back private bankers over the Constitution; the FED is expendable, the Constitution is not.
5) Is a reminder that the FED is now doing their own electronic snooping on American citizens
6) Fed must be worried and must think it is going to need the military
He is financing the entirety of the war effort(s) so i give this particular news conference an A+ and recommend more. Insofar as the "idear" that we are on the cusp of a massive deflation here in the US as well (since Europe is plunging into one over there) i'm not so sure. Right now reading about Chinese warships running the Mekong River of all things and "basing rights in Australia" etc, etc...Talk like this leading to action can reduce unemployment in the USA to near zero very, very, very quickly.
Question: Did the base commander invite Bernanke or did Bernanke invite himself? Fort Bliss is right across from Ciudad Juarez. Think "Zetas", and drug wars, and drive-by shootings, and mass graves out in the desert, and serial murders of females (because they are female) over nearly two decades. What was Bernanke doing at Fort Bliss?
Odd.
Hit chick ... I guess until she opened her mouth. She seemed half asleep. I guess she'd be ok if you put a bag over her mouth
"The Bernank is mistaken if he thinks the military will back private bankers over the Constitution; the FED is expendable, the Constitution is not. "
Power is power, the name isn't important. EVERYTHING is expendable when power is threatened: GW Bush belted out that the Constitution was just a "goddamned piece of paper."
And if the "military*" is all that keen on the Constitution then why does it allow itself to be USED by the Executive Branch?
* One must define what one means when using this term. Does it refer to the common Marine, Airman or Soldier? Or, does it refer to the power that commands them, the Generals? The Generals care only about their positions of power: yeah, there are exceptions, but as a whole they lock-step.
Also, keep in mind who now owns US debt...
Obummer/Fed are very, very worried about the military vote and their huge contributions to Ron Paul especially as USAA, a very large financial institution, fully supports the militaries' fury at (JPM/Fed et al) re losing their homes after being sent overseas and being unable to make payments. The Fed is being VERY political here. Bernanke's behavior is disgusting.
So let's hear it from the Jim Grant is gay and stupid because he wears a bow-tie crowd?
Come on y'all!!
U can do it!!
Find your inner OWS retard and get in line. The train is on it's way.
Just cooperate. Just get along. Be cool.
Are you in?
How long have you been a chin knocker?
Fucking morons.
I'm failing to appreciate your contributions... Perhaps they're over my head?
here's a question , why is jim grant not being murdered, poisoned or otherwise silenced by the fed?
'i think that soon enough he will be quiet or he will be gone.
If you notice his nose is pointing strait down her top.
1. it is NOT against the ECB's charter to buy Italian bonds in the open market
2. the ECB is NOT prohibited from buying French bonds in the open market
The ECB is prohibited from buying French, Italian,, and any other Eurozone Govt bonds directly from the respective govts.
Article 123 of the Lisbon Treaty:
On the other hand it is expressly authorised to purchase such bonds indirectly (French, Italian and any other Govt bonds) as part of its Open Market Operations as long as it has established "general principles for open market and credit operations carried out by itself or the national central banks, including for the announcement of conditions under which they stand ready to enter into such transactions.” (Article 18.1)
Such general principles and announcement have been made clear here, establishing the so called securities markets programme (SMP):
http://www.ecb.int/ecb/legal/pdf/en_dec_2010_5__f_sign.pdf
So far, the ECB has purchased for 183 billion worth of Eurozone Govt bonds under the SMP. There exists NO fixed limit to the amount of bonds the ECB can purchase under the SMP but it must also keep up with its primary objective of maintaining price stability (ie maintaing inflation in the Eurozone at or around 2% over the long term).
So, the ONLY question is, by how much could the ECB expand its balance sheet (ie extend its SMP) while maintaining its long term primary objective of 2% inflation?
It is difficult to answer this question but if one looks at the QE programmes carried out by the FED, the BoE and the BoJ over the past years which have been ORDERS OF MAGNITUDE larger than the meager 183 billion carried out so far by the ECB, I think it could easily add another 1 trillion... the consequence would be EURUSD moving towards parity but it is not clear at all this would significantly jeopardize long term inflation in the Eurozone, especially in the kind of recessionary environement like the one we have now.
If one looks at the current rythm of the ECB's SMP purchases over the past 3 months, 11 billion / week, adding a trillion over the next two years seems like the most likely scenario.
"long term primary objective of 2% inflation"
2% means a devaluation by 50% in 35 years' time. This is a good goal?
I think that anyone promoting growth as being good for the human race needs to be hung. Growth is ONLY good for those in power! Yes, it's fun to borrow from the future and all, some great parties have been thrown, but in the end it's nothing but a slaughter for us.
ZH,
For the love of fucking god, if you so ever hit bomb another video segment like this I will make it a point to write the editors/marketers BY PAPER to protest and explain in excruciating detail why the hit counts are INSANE.
JFC, I just want to troll on the eve of veterans day, and I love Jim/James Grant. I follow him as closely as I can.
But fuck! Every FUCKING post. I am anal, and I am tired of gaming the page load to stop the damn audio so I can go back to trolling the thread.
I feel better now, I take it all back.
<Stares/>
Regards,
Cooter
In my best Butthead voice:
"He said Rick Romney".
Did anybody else catch that? He meant either Rick Perry or Mitt Romney, but he said "Rick Romney". Pretty funny and prescient; IMO they are both ass-wipes.
Cain, Gingrich, Paul, Bachmann. I don't care who wins as long as they agree to put the others in their cabinet!
Not sure if ZH picked up on this back mid-year when it was hot in the blogosphere (probably did and I forgot), but there's also the fact that, since 2007, the TARGET2 accounts of PIIGS nations with the ECB have been blowing out (counterbalanced against Germany which is in surplus). Key question is WHY?
As it turns out, the leading explanation seems to be that the ECB relaxed collateral quality requirements and is, in essence, offering a subsidy to PIIGS nations as they seek to refinance. In essence, the ECB has, since 2007, been dealing in covered eurobonds, covered by the sovereign debt of PIIGS nations, the quality of which the ECB is treating as AAA when it's actually not (that's the subsidy).
The PIIGS nations have, of course, loved it as they are able to secure financing direct from the ECB without having a punitive haircut imposed that the regular market insists upon (as the regular market recognizes the default risk of PIIGS).
What I find rather interesting is that this is being done in direct violation of Basel-2 as pointed out by "Velorene Generation":
So the ECB is dealing in Eurobonds stealthily with PIIGS nations, collateralized using sovereign debt of the very same PIIGS, meaning that if one of the PIIGS goes down, the posted collateral will not perform, leaving the ECB on the hook. Because Eurobonds effectively dilute debt cost and costs of default between all members of the eurozone, the general strategy of the ECB it seems (and what got us into this mess), is to happily let TARGET2 surplus nations bearing the lion's share of the consequences (ie, Germany).
As far as I'm aware, there isn't any limit to TARGET2 accounts. PIIGS can keep running to the ECB whenever the market starts asking tough questions and the ECB will happily pretend nothing is wrong and take all that risk off the PIIGS hands onto its own and dilute it throughout the Eurozone, punishing prudent nations such as Germany when the shit hits the fan. This is anti-deflationary and prevents natural balance from returning to the eurozone. The reason given to turn a blind eye to it (collateralization) is basically a load of shit. Germany must be pissed off.
So does this make the ECB the another Countrywide?
Gotta love the ivy league geek humor. "1883!!!!!!" "Remarkable"
What are these guys smoking to find this funny?
Jim Grant, Jim Rogers, Tom Keene (erm), maybe The Bernanke should wear a bow tie, it might help him see sense.
I was starting to stretch on the third example!