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Visualizing Why LTRO = QE

Tyler Durden's picture


Quantitative Easing (QE) is/was seemingly a magic remedy, at least in the short-term. As GLG's Pierre Lagrange notes, central bankers can conjure up money out of thin air and use it to purchase assets - transforming transferring toxic debt, stimulating demand for risk assets, devaluing currencies (this deflating debt), and maintaining low interest rates on govvies. The ECB's more restrictive mandate, however, does not allow them to print money for any other purpose than lending and so direct QE was out of the question and so, as the chart below demonstrates, they ingeniously created the LTRO - delivering an infusion of liquidity (potential profits from carry and hope for capital raises).

Of course we now know that the encumbrance issues and banks' lackadaisical attitude to raising capital has left many on a worse situation (far worse than if 'traditional' QE was employed) as financials and sovereigns are even more contagiously integrated, collateral has been whisked away from a desperate market, and the short-term benefits never flowed to the real economy (gummed up in the lack of transmission from bank reserves). Theoretically, there are few limits to what the ECB can do, and it seems the market is once again testing the politicians' and central bankers' resolves as we head into a summer dominated by distractions like the Olympics - increasing the chance of risk flares on low liquidity.


The key then is that LTRO may look a lot like QE - and is the ECB's workaround their mandate, but the unintended consequences will only make matters worse as the vicious circles re-appear...

And of course this:

Source: Barclays

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Fri, 05/04/2012 - 10:45 | 2396886 maxmad
maxmad's picture

No matter what.... Dollar loses most of its value by the fall 2012!

Fri, 05/04/2012 - 10:49 | 2396903 theTribster
theTribster's picture

Don't bet on it, while the Fed would like that the Euro is heading lower and will continue to. I think the dollar gains energy over the next few weeks and Europe and Japan become more and more destabilized. I'm short the Euro but (admit) I am afraid to go long the Dollar when the FED refuses to let it get any topside momentum...

Remember America is stronger than Europe because we made the right decisions [sarc]...Poor Ben, what to do, what to do?

Fri, 05/04/2012 - 10:54 | 2396919 maxmad
maxmad's picture

talking your position?  Its a race to the bottom and China is short the dollar!  Betting on the collapse of the dollar!  I think I would trust the Chicoms on this one.

Fri, 05/04/2012 - 10:55 | 2396924 JailBank
JailBank's picture

The dollar might gain some strength in the short term, but long term a strong dollar is not the policy. As Europe prints so to must the FED. When we print so to must China. Hainvg the strongest currency is currently the hot potato in markets.

Fri, 05/04/2012 - 10:58 | 2396938 maxmad
maxmad's picture

Yep.... Sir Ben is in a box.... For all the money printing he has done thus far, the dow should be at 20,000!  Instead we sit teetering on 13,000!  Epic FAIL!

Fri, 05/04/2012 - 10:46 | 2396890 cbaba
cbaba's picture

Its a very good and simple presentation.

Fri, 05/04/2012 - 10:49 | 2396902 maxmad
maxmad's picture

Except there should be another chart that shows how the value of each currency drops with each round of QE/LTRO

Fri, 05/04/2012 - 19:53 | 2398581 StychoKiller
StychoKiller's picture

How could such a chart be calculated with no point of reference? (well, there is one: Gold!)

Fri, 05/04/2012 - 10:50 | 2396905 VonManstein
VonManstein's picture

DXY fully retarded today...

Fri, 05/04/2012 - 10:53 | 2396917 kraschenbern
kraschenbern's picture

Perhaps LTRO is the only "flow" the banksters can conjure up.

Fri, 05/04/2012 - 11:29 | 2397038 falak pema
falak pema's picture

the question is HOW can the Euro fall to USD parity if the USD falls as well? It means both these reserve currencies fall wrt to hard commodities and Yen. As the Yuan is USD pegged, either the chinese allow Yuan to appreiciate considerably or it follows USD peg. Crazy world, race to bottom and no way out. Currency wars feed the export urge in a world recessionary market that will tilt over bigtime if China goes to 2-3% real growth rates of GDP. At that point the fiat bubble is unsustainable and assets will start hitting rock bottom.

So much simpler if the Oligarchs pumped all their stashed hordes into the economy and stopped this crazy debt pump of "funny money" going nowhere but to mega pop.  

Fri, 05/04/2012 - 11:33 | 2397044 Village Smithy
Village Smithy's picture

I learned from watching Frontline that this is called "regulatory arbitrage" when supposedly prestigious institutions carry it out. To me its alot like when your kids don't like the answer that you gave them and they go and ask their mother instead. Fucking pathetic.

Fri, 05/04/2012 - 16:43 | 2398204 Thisson
Thisson's picture

The only notable difference between QE and LTRO is that one is a "Sale" and one is a "Loan"

Sat, 05/05/2012 - 13:59 | 2399551 Nussi34
Nussi34's picture

Long GOLD short politicians!

Sun, 05/06/2012 - 21:33 | 2402262 dserfc
dserfc's picture

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