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Presenting A Full List Of The ECB's Non-Monetization Options
Without doubt the primary topic of "serious" watercooler discussion in the last several weeks, and likely to last for many months, is whether or not the ECB will print, and if not why not. We have discussed this issue extensively in the past and are confident that the ECB will not be involved before there are at least 2 or 3 major bank casualties, which allows Goldman to step in and claim the wreckage at pennies on the dollar. Naturally, once the dominoes start falling, most likely early next year, the ECB will have no choice as Germany itself will be threatened once every neighboring country is collapsing left and right. But what happens in the meantime: what are the ECB's options short of outright monetization? Below we present the full list of ECB "support measures" that can be implemented that won't infuriate Angela Merkel, as compiled by Reuters. The question of course is not whether any of these can be implemented, but what and how long their impact will be before the dreaded "half-life" phenomenon exerts itself. The other question, of how one can claim the ECB is not monetizing when it is in fact doing not only that, but doing it 30% more on a monthly basis than the Fed as shown earlier, is a completely separate one.
So without further ado:
ULTRA-LONG TERM LOANS FOR BANKS
The ECB's reflex response in times of trouble is to jet hose liquidity at the banking system. According to euro zone central bank sources it is currently considering extending the length of the loans it offers banks to as long as three years.
This would be an unprecedented move and a clear signal of support by the ECB. In addition it could hold more operations where banks can borrow for one year or six months and promise to keep such sessions on offer for a lengthy period of time.
Its dollar-denominated loans could also be extended or made more attractive by adjusting the terms and the pricing.
FIX THE PRICE OF ITS LOANS
The bank could revert to offering its longer-term loans at a flat, fixed rate, rather than its current approach of a rate which tracks any headline ECB rate hikes or cuts.
In mid-2009 the fixed rate approach spurred banks to take a whopping 447 billion euros ($595 billion) in one-year loans which drove down the cost of borrowing on the open bank-to-bank market to just over 0.3 percent.
The euro zone's deterioration since then makes another such frenzy unlikely but fixing the interest rate could certainly boost demand significantly and push down borrowing costs again.
FURTHER RELAX ITS LENDING RULES
The ECB could relax its lending rules in a variety of ways to make it easier for banks to get access to its funding.
It could go back to allowing them to swap their dollar, sterling and yen-denominated assets for ECB loans. It did so between mid-October 2008 and the end of 2009 and doing it again would be a boost for those running short of euro-denominated collateral. The first time around it added an extra charge of 8 percent for using non euro assets.
A more general broadening of the types of assets it accepts as collateral is another option.
INTEREST RATE CUTS
Markets expect the ECB to continue cutting interest rates. Previously it only went as low as 1.0 percent with its main rate and 0.25 percent with the rate that banks get if they deposit overnight at the ECB.
The intensity of the crisis could soften resistance to going below 1.0 percent. J.P. Morgan has predicted the bank will go as low at 0.5 percent with its main rate and 0.25 with its overnight deposit rate.
Other money market experts say it could even cut the deposit rate to zero, which would mean that banks get nothing if they hoard cash at the ECB. This could help encourage those with spare money to overcome their reluctance to lend to peers.
BANK DEBT PURCHASES
The ECB has the ability to buy bank bonds and other bank issued securities. If it wanted to, it could make such purchases in tandem with its more controversial purchases of sovereign debt as part of its 'Securities Markets Programme'.
A concerted spell of buying could ease the funding pressure that banks are currently under but is likely to provoke complaints from politicians and the public.
FUND A CRISIS-FOCUSED IMF VEHICLE
While the ECB itself could not do so, the 17 national euro zone central banks could effectively print money to put into an IMF-controlled fund designed to help tackle the debt crisis.
Sources told Reuters earlier this month that policymakers were exploring the possibility.
This is the sole scenario under which the EU treaty allows central banks to pass money to governments.
Euro zone central banks have provided funding in such a way on two previous occasions. The first was for the IMF's Poverty Reduction and Growth Facility and the second was its Heavily Indebted Poor Countries Initiative.
LEND TO THE EFSF
Were the euro zone bailout fund to be given a banking license, there is nothing to stop it borrowing money at the ECB's mainstream lending operations and using to money to help out troubled countries.
Legal question marks remain over whether this could constitute financing of governments, something which is illegal.
So far the ECB has said it opposes the idea. However, it might be prepared to soften its resistance if it felt governments had taken the necessary steps to address their problems and the bloc as a whole introduced centrally-orchestrated debt controls.
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This could have been a much briefer post, given the title.
only if you put the word 'serious' somewhere in the title
yup! no article, S_it_sky!
All these problems address the liquidity issues but everyone on ZH knows its not a liquidity issue its a solvency issue. Greek is BK let them go. Italy and Spain are next let them go. Clean out the system so we can finally get some real growth
Cutting loose the deadbeats leaves you with an AAA-rated EURO currency that will quickly destroy the export giant at its center. I am sure there are executives at Mercedes and BASF ready to commit suicide were this to happen.
The ECB is going to go the way of the Federal Reserve, which means, it's going to collapse!
-John
http://johnu78.blogspot.com/2011/11/how-to-get-started-in-amateur-radio.html
++1
This solution would allow the ECB to continue and the EU to continue. The same needs to be done to all the deadbeat states that are also bankrupt in many Federations.
Or the ECB could just call Ben and have him print for them--secretly, under the cover of some deceptively titled program.
http://www.youtube.com/watch?v=Rkgsi4wzP-I&feature=related
enjoy the music.. it is better than the Shit the FED has you dancing too!
It cost the Tax Payers almost $100,000 dollars a year to house Prisoners. Right now Wall Street is Spending Millions of Dollars on Congress and the Senate so that NON-VIOLNET Offenders.. will have longer Prison Stays. When a kid is driving down the road with an oz. of weed.. he gets prison time and Wall Street gets to suck yet more Tax Dollars away from Roads, Bridges and Education.
Wall Street needs to Lobby Congress and the Senate to increase Prison Terms for NON-Violent Offenders so that we can have less dollars for education. Great! Just what America needs! more Prisons, Longer Stays in Prisons! a More Profitable Wall Street! and dumbass kids because our schools suck! so then they can go to Prison to make Wall Street yet more profits!
and people would say that it is not that simple, those people work for Wall Street and are not interested in the overall strength of America or even what is good for America.. the LAW! says that they, Wall Street must strive to be as profitable as possible.. it is illegal for a Corporation to do anything but ignore everything (America Included) and find new ways to earn more money for the share holders.. America does NOT! have a Place in the Board Room!
Education? Roads? Bridges? Fix our infrastructure? or?? put some kids with an ounce of weed in Prison?
and everyone says this doesn't concern them, until it is your kid.
http://www.aljazeera.com/indepth/opinion/2011/11/20111127105458655442.ht...
financed by the American tax payer, of course.
Secret Fed Loans Helped Banks Net $13 Billion
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to...
eat, drink, and hose the liquidity of love, BiCheZ, for tomorrow we may _ _ _!
Where is the check box for ALL OF THE ABOVE, and keep it under the table?
http://www.haaretz.com/news/middle-east/report-explosion-rocks-iran-city...
Yikes , if true .
Very helpful of Rothschild to give the sheep some further suggestions for REARRANGING THE FUCKING DECK CHAIRS!!!!
OT/ Who is going short at 3:59.59 pm today? (Mid-day MACD crossover rally fading out already, or a prelude to the EOD short squeeze climax?)
I'm looking at it right now. I don't feel comfortable shorting though until WTI is a toe hold over $100 though.
I'm guessing EOD short squeeze for today, tomorrow it'll likely start to peak out
Holy mackerel! Dead cat bounces everywhere!
Wonder how long it´ll last though.
All bullish for US banks.
/Dick Bove
Bove capitulates today on US banks--time to buy, finally, now that the Bove kiss of death is gone.
Everybody asks, "When oh when Dear God of Mercies will this madness end?"
Well it's like this. They own the hourglass. But it has leaks. They can turnover the hourglass as many times as they want.
Until there's not enough sand left.
It will end when they all become mentally exhausted from running circles in their minds. Sadly, it appears to be a relay race with different agencies getting the baton. Could be a while.
Every single one of those "options" paints the ECB further into the corner where the Fed already sits.
At some point in the next 2-3 years, inflation will begin to accelerate and these two central banks will be utterly powerless to do anything about it.
By design.
This only addresses the liquidity problem of our fraudulent paper monetary system. But the real problem is solvency.
The entire world is living on imaginary wealth. That is what needs to change.
Read:
http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref
+1
Fiat currency allows for many visions.
FIAT COLD TURKEY baby !!
Withdrawal and shrinkage is a bitch.
Close the FIAT window.
I think the real question is which, if any of these options will promote growth (i.e. restart the debt pyramid). My guess is that none of them will get the game going again....just slow down the effects of debt contraction/destruction.
What about the gold option, after all the Euro currency was built around it.
Might they put in a bid for physical gold?
Well, the Institution of zee price stabeeleetee, also know as ECB, has been buying bank debt since 2009. During 2009-2010 ECB bought 60 billion of covered bonds issued by banks. This month the same fraudulent ECB restarted the covered bond purchases with a 40 billion program and modified criteria for eligibility ie now "anything goes". ECB has lost all credibility not to mention the sacrosanct "independence" they claim to have. All they do is talk abt "zee price stabeeleetee" while their actions are pure and simple ponzi perpetuation by debt monetization.
http://www.ecb.int/press/pr/date/2009/html/pr090604_1.en.html
http://www.ecb.int/press/pr/date/2011/html/pr111006_3.en.html
" On long enough timeline the survival rate for everyone drops to zero" on that basis lets drop option 1 of Ultra-long loans.
2. Problem is except other banks nobody wants to borrow from them so fixing rate want help too much.
3. Relaxing rules, ha, that means they take shit for freshly printed money, do they have any other left?
4. Cut rates, yes, they will lend to peers and peers will do something with that money, exactly what - cover their ass for a moment and then moment is gone, what's next.
5. ECB will buy bonds of the banks using what money, from the printpresses, and what they will do with those bonds, keep them forever.
6. Fund IMF - again with what money? Probably China and bricks will kick in few trillions and say good bye to them just for better feeling.
7. Lend to ESFS - first you have to have money to lend and that's the problem.
Good solutions anyway.
The ECB won't go wandering around in the dark, all by it's lonesome. Europe is waiting for the Fed to ante up. It will look like it comes from the IMF, but the debtor nations will be supplying cannon fodder for the wars of conquest, in repayment.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
I swear If I have to read the words "Eurozone optimism" one more time I'm going to throw up in my mouth...
Already there... +1
http://globaleconomicanalysis.blogspot.com/2011/11/icap-testing-trades-in-greek-drachma.html
http://www.marketwatch.com/video/asset/trade-systems-brace-for-euro-zone-break-up-2011-11-28/7124BE52-86C4-4AD4-A4DD-A70EEE264E57
Exactly. Creative destruction within the banking industry can only be self-induced. 2008 redux; yet "surprisingly", no true participating member of the clique sustains destruction after his ship is devoured and he escapes with a lavish compensation.
long ECB, short HPQ
These might be the water cooler conversation....but what about the back room conversations where the Fed effectively prints to the IMF, The IMF does a EUR swap and then backstops European banks with IMF "loans"?
The socialists at the ECB and Fed will eventually overcome resistance at the neuterede Bundesbank. And they only answer for the socialists is to PRINT. They will print unles they are physically prevented from doing so....