While the world and their cat believes that Mario Draghi saved the world last year - and continues to do so with his open-ended promise to do "whatever it takes" whatever that means (and the market's "positive contagion"). However, the reality, away from a sovereign-bond implied view of the world - with short-dated Spanish bonds now at 26-month low yields (whereby these bonds are sucked up wholesale by an ever more concentrated and self-satisfying group of European banks) is far different. As these two charts show, not only does Draghi's decision not to lower rates (when inflation and unemployment - both more 'real-world economy'-impacting items) indicate Taylor-Rule-esque that rates need cutting; but while banks get all they want (and more) from his over-flowing cup or collateralization and repo, credit extension in Europe continues to slide ever more negatively. Yes, Draghi saved the banks (for now) but, just as the scariest chart shows, Europe is very far from saved; and for those looking at TARGET-2 imbalances, the risk remains, it has merely shifted to the core [8].
While the ECB continues to 'ease' via over-paying for crappy collateral to banks, unemployment and inflation point to more is needed (but of course the transmission mechanism is broke! as it is in every developed economy full of Zombie banks)...
[9]
Which means real-world credit (the life-blood of the Keynesian economy) continues to slide; due to demand - balance sheet recession; and lack of supply - easier risks elsewhere - and note the bank loan default rate we pointed to earlier...
[10]
Charts: Bloomberg Briefs