Thursday, September 6, 2012
Smoke and mirrors. Who has the lifejackets for this sinking boat?
When strip tease is all tease and no strip. The smoke, mirrors, lifejackets, and boat come later.
For a start, the lack of a limit on bond buying could simply reflect unwillingness on behalf of the ECB to commit to a specific amount of purchases rather than anything bolder. The reports also suggest such purchases will not be “unsterilised” and therefore not amount to full-blown quantitative easing. What’s more, they will have a maturity of less than three years. Meanwhile, Draghi is likely to restate that the ECB will not act until the EFSF or ESM have bought bonds, which could be months away. And it seems the Bank’s purchases may be conditional on the governments in question meeting economic and fiscal targets – the Bank could even threaten to stop bond purchases or even sell its existing holdings if governments fail to comply with demands.
Meanwhile, with the region’s core countries now following the periphery into recession, the Bank might adopt further measures to support the broader economy. On balance, we see interest rates remaining on hold, although a cut is quite possible. And the ECB could outline plans to get the liquidity that it has provided to commercial banks into the hands of firms and households. The Bank of England’s Funding for Lending Scheme might provide a useful blueprint in this respect. Note, though, that such a scheme is unlikely to do much for the euro-zone’s periphery where banks need any extra money to repay their debts and sky-high unemployment and plunging profits are making the private sector very reluctant to borrow.
Sterilization refers to the practice of draining reserves from the financial system in order to prevent a rise in the money supply. When the ECB purchases bonds, it’s injecting liquidity into the financial system – liquidity that banks might be tempted to use to buy other assets or make loans, effectively creating new money.
First off this has been going on for months now. That slow strip tease of the promise of some type of bailout or solution to the Euro Union mess. And it amazes me that none of these financial wizards has bothered to read history. Austerity has never brought about recovery at any time in the past. Doesn't 'sterilize" mean to render impotent? If the financial system can't lend the money then what's it supposed to do with it? Let it sit in a vault or hard drive and collect dust? Having somebody's back may be all well and good but what about the dangers in the front?
But like the teaser they only show a bit of cleavage. Was the cover charge worth it? Keep promising them more but give them nothing. Oh it's okay we'll get a peek in a couple of months. That's like your parents telling you "maybe" or "we'll see". Better odds of getting hit by lightning. Problem is everybody's wise to the game so nobody's buying this BS. They can credit their debits and debit their credits till the cows come home. It's not going to change the situation. Somebody want to tell them there's a hole in the boat and this thing is no Boston Wailer. Smoke em if you got em just don't look in the mirror. Hey somebody stole my lifejacket!