Confirming once again that when it came to last year's LTRO desperation, the operation was nothing but the latest attempt at filling liquidity holes at insolvent banks, and nothing to do with facilitating lending, is the interview by Helsingin Sanomat with ECB council member Joerg Asmussen, according to which there would be no more LTROs until the ECB found out what it is the LTROs actually do. From Bloomberg [6]: "The European Central Bank won’t provide more long-term loans until it has studied how the funds are distributed into the economy, council member Joerg Asmussen told newspaper Helsingin Sanomat. “We need to see how this liquidity feeds through over the next few months,” Asmussen said, according to a transcript of an interview with the Finnish newspaper on March 24 and published today." Well supposedly this means that with everyone now looking the ECB squarely in the eyes while also looking askance at $10/gallon European gas, there will be no more LTROs "for at least a few months" as the ECB actually figures out what it has done. Which also explains why the need to redirect from one bailout process, now topped out as the LTRO no longer is pushing the European economy higher, to another: the old narrative of EFSF+ESM expansion, so prudently picked up over the weekend by Angela Merkel.
“Nobody should expect that we will do a third LTRO based on the fact that we have already done two LTROs,” he said. “We never pre-commit on our actions."
The non-standard measures employed by the Frankfurt-based central bank to counter the crisis, including buying peripheral euro members’ sovereign bonds and lending funds for three years, are temporary and have served to prevent a credit crunch in the 17-nation single-currency area, according to Asmussen.
Trillions in extra cash never lead to inflation. Seriously.
The extra liquidity in the financial system hasn’t caused a jump in the inflation rate, he said. Euro-area consumer prices increased for the third month in February, rising 2.7 percent, the same as in January.
“We monitor this very carefully,” Asmussen said. “Inflation expectations across the euro zone are firmly anchored. Owing to rises in energy prices and indirect taxes, inflation is likely to stay above 2 percent in 2012, with upside risks prevailing. In the medium-term we expect price developments to remain in line with price stability.”
The ECB’s objective is to safeguard price stability, defined as inflation near and under 2 percent. Its steps have eased pressure on the markets, allowing banks to keep lending to businesses and households and keeping credit flowing.
“Our non-standard measures are there in order to ensure a good functioning of the policy transmission mechanism,” Asmussen said. The time isn’t right for withdrawing that support, he said, signaling that even amid the crisis, policy makers must begin to consider mapping out how to arrive at a more-standard policy.
“In our view, it is too early to decide on the exit from non-standard measures,” Asmussen said. Even so, “we have to start to think about how to prepare the exit.”
Too early to decide on exit, but never too soon to conclude that flooding markets with countless fiat 1s and 0s is at best neutral and at worst deflationary. Got it.