ECB should limit amount of liquidity in the eurozone, says Wolfgang Schaeuble [Telegraph]

The European Central Bank should try to limit the amount of the liquidity in the eurozone, Germany’s finance minister has said, as he warned that pumping money into crisis hit economies would not create growth if they were not matched by reforms.

The European Central Bank should try to limit the amount of the liquidity in the eurozone, Germany's finance minister has said, as he warned that pumping money into crisis hit economies would not create growth if they were not matched by reforms.



“There is much money in the market, in my view too much money,” Schaeuble said in an interview for the German economic weekly Wirtschaftswoche on Friday.

“If the ECB tries to use what leeway it has to reduce this great liquidity a little I would welcome that,” he said, adding that the ECB had done well to bring inflation below 2pc.

“We in Germany should not forget that many European countries are still in a precarious situation with economic growth,” he added. But pumping liquidity into their economies without far-reaching structural reforms would not create the conditions for sustainable growth. Mr Schaeuble said.

Mr Schaeuble also said he supported a global minimum corporation tax rate and that he remained committed to tackle evasion and tax havens.

Last November, Mr Schaeuble joined UK Chancellor George Osborne in calling for the world’s leading economies to combat tax avoidance and to force corporations to pay their fair share of tax or face the consequences.


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Jean Claude Juncker: Europe’s demons are only sleeping [Telegraph]

Jean Claude Juncker, prime minister of Luxembourg, who chaired a group of Euro-zone finance ministers at the height of the financial crisis, claimed that elections in Italy and Greece brought “national resentments to the surface, which we’d believed had gone away”.

He said that he had been appalled by protesters’ banners in Greece which showed Angela Merkel, the German chancellor, in Nazi uniform.

Mr Juncker said in an interview with the magazine Der Spiegel: “Anyone who believes that the eternal question of war and peace in Europe is no longer there risks being deeply mistaken.

“The demons have not gone away – they’re only sleeping, as the wars in Bosnia and Kosovo showed. I am struck by how much conditions in Europe in 2013 are similar those of 100 years ago.”

The way in which some political figures in Germany had been criticised in Greece has left “deep wounds” Mr Juncker said. He said the Italian election was also “excessively hostile to Germany and therefore anti-European”.

Jean Claude Juncker warns resentment of Germany could lead to new European war

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How A Handful Of Unsupervised MIT Economists Run The World [Zerohedge]

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people,explains why.

From the WSJ:

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

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ECB Head Forced To Defend His Goldman “Conflicts Of Interest” [Zerohedge]

As we have discussed a number of times (most recently here), the infiltration of Goldman Sachs alumni into the highest ranks of political and monetary policy ‘running the world’ ranks is becoming pandemic. What is perhaps even more surprising is the fact that during the ECB’s press conference this morning, the head of the world’s ‘almost’ most powerful entity had to defend himself from such crackpot, tin-foil-hat-wearing, digital-dickweed-esque conspiracy theories that Draghi’s affiliation to the Mother Squid is of greater importance than his current professional position. The sadly ironic aspect is that Draghi’s membership of the Goldman Sachs-sponsored G-30 warranted more discussion during the press conference than that of Italy’s Monti debacle (or Greece’s “killer medicine”).


From ECB Press Conference


Mr. President, I have two questions about your membership in the Group of 30.

First, taking your closeness to the private banks and in face of pending conflicts of interest and ethical issues, how do you explain your ongoing G30 membership?

And my second, of the 30 members, five members are formal or present bankers of Goldman Sachs.

This group is co-founded by Goldman Sachs. You’re a former fellow of Goldman Sachs.How do you intend to avoid conflicts of interest?


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ECB Bond-Buying: The Rape of Europe Continues [bullionbullscanada]

In the summer of 2011, I wrote a four-part series entitled Economic Rape of Europe Nearly Complete”. In that extended piece; I detailed how the combination of three malevolent forces was decimating the economies of Europe one-by-one.

Through the relentless fraud/manipulation in Euro debt markets, sadistic “austerity”, and so-called “bail-outs” which just bury these insolvent economies even deeper in debt; the Western banking cabal is systematically looting these nations.

The manipulation of European debt markets was (is) accomplished through the fraudulent riggingof the credit default swap markets; combined with the complicity of the Big Three ratings agencies and the West’s media Oligarchs.

The bankers manipulate credit default swap prices higher, simply by piling-on massive bets that a particular Euro-zone nation will default. The propaganda machine immediately shrieks that “risk” has now increased for this debt market, and then the accomplices in the ratings agencies comply with a ratings downgrade – immediately driving interest rates higher.

With the massive debts being carried by these economies, any increase in interest rates automatically makes the economy significantly less solvent, turning this tag-team of fraud into a self-fulfilling prophesy. With the banksters literally capable of manipulating Euro zone interest rates to any number they desire, as a matter of simple arithmetic it is impossible to “bail out” any of these nations – by lending them more money.

The moment more bail-out dollars are released, the banksters immediately drive interest rates even higher. Thus all the bail-out dollars are siphoned-out of the economy in the form of higher interest payments to the Bond Parasites, meaning all that each “bail out” accomplishes is to pointlessly pile on more debt.

Meanwhile, as more and more of every revenue-dollar is sucked out of these economies by the debt-market fraud, Austerity is literally nothing less than economic suicide. In economies already starved for capital, Austerity is the precise equivalent of a doctor putting a severely anorexic patient on a diet.

The empirical evidence is overwhelming. In every European economy which has inflicted Austerity on its population, the rate of economic contraction has accelerated, and the size of the budget deficits has grown larger instead of smaller. Since the entire raison d’etre of Austerity is to (supposedly) shrink these deficits, it is nothing less than deliberate suicide to continue this policy, and serves no purpose except to free-up more dollars to be paid out as interest payments to the Bond Parasites.

With these European governments having no viable plans for excavating their economies from debt, and with the bankers capable of instantly sabotaging any plan with more debt-market fraud (even if there was a plan); lending these economies more money (and calling that a “bail out”) is still more suicidal insanity. All that is accomplished is to increase the size of these debts – and interest payments on those debts – still further.

This systematic looting can only possibly result in the complete bankruptcy and total destruction of each of these economies, as has almost been completed with Greece. Now these Financial Fascists want to both accelerate their economic rape, and to tighten the choke-chains of debt around the throats of these governments.

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Friday Humor: The ECB Explains What A Ponzi Scheme Is; Awkward Silence Follows [Zerohedge]

From the ECB’s Virtual Currency Schemes, aka the “Bash Bitcoin Boondoggle” (p. 27):

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity

Considering that this elucidation comes from the very same entity that launched the SMP, LTRO, OMT, EFSF, ESM, oh, and of course, TARGET2, and whose head said to not short the EUR as there is “no risk” whatsoever in holding said currency, one would expect that this definition is absolutely spot on…

* * *

And as an added bonus, here is the part in which the ECB appears to be so worried about BitCoin taking over as legitimate “legal tender” from the EUR (which the ECB’s Coeure said two days ago is as “solid and longlasting as a diamond”) it dedicated an entire report to bash the recently conceived electronic currency:

In an extreme case, virtual currencies could have a substitution effect on central bank money if they become widely accepted. The increase in the use of virtual money might lead to a decrease in the use of “real” money, thereby also reducing the cash needed to conduct the transactions generated by nominal income. In this regard, a widespread substitution of central bank money by privately issued virtual currency could significantly reduce the size of central banks’ balance sheets, and thus also their ability to influence the short-term interest rates. Central banks would need to look at their existing tools to deal with this risk (for instance, trying to impose minimum reserve requirements on virtual currency schemes).

The substitution effect would also make it more difficult to measure monetary aggregates and, as a consequence, would affect the relationship between the monetary aggregates as measured and inflation, which is used to gauge risks to price stability in the medium to longer term.

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Update on the banking union initiative in the Eurozone [SoberLook]

Here is the latest on the Eurozone-wide bank regulation initiatives. The area leadership seems to have agreed on some key principles of bank supervision:

  1. The ECB will be the ultimate supervisor for all 6,000+ Eurozone banks.
  2. National regulators will run day-to-day supervision for all banks, except…
  3. The ECB will directly oversee the 25 largest “systemic” banks.
  4. Bank bailouts via the ESM will not take place until the EMU-wide supervision is put in place (supposedly by 2014, though looks unlikely).
  5. The ECB will have the ability to intervene in any of the Eurozone banks.
  6. The ECB would not object if some EU banks outside of the Eurozone were supervised separately.

Reuters: – While he fully expects the ECB to have authority over all the euro zone’s 6,000 banks, the Frankurt-based institution would concentrate on the systemically important lenders and delegate routine supervision of the rest to local watchdogs.

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The ECB managed to increase broad money supply in the Eurozone but is unable to improve credit conditions [SoberLook]

The ECB’s massive balance sheet expansion during the past year succeeded in generating growth in the euro area’s broad money supply.

ECB balance sheet (€mm)

However the increase in money supply is yet to translate into material growth in credit. The two indicators have diverged.

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Debt crisis: central bank action is work of the devil, says Germany’s Jens Weidmann [Telegraph]

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi’s bond-buying programme, he said: “If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” He added: “Yes, this temptation certainly exists, and many in monetary history have succumbed to it,” Mr Weidmann warned.

Although the remarks were in context – Frankfurt is currently marking the 180th anniversary of the death of Goethe – they defy calls by leaders for Mr Weidmann to tone down his criticism of the ECB, particularly at a febrile moment in the crisis. The launch by Mr Draghi of an unlimited bond-buying programme has boosted both confidence and markets.

Spanish and Italian borrowing costs dropped marginally on Tuesday. The yield on Spain’s benchmark 10-year bonds dropped to 5.8pc from6pc earlier in the week; equivalent Italian debt hovered around 5pc.

But pressure continued to mount on Spain to officially request a bail-out from Brussels to stabilise its economy and the rest of the eurozone. In an interview, Soraya Saenz de Santamaria, Spain’s deputy prime minister, said Madrid was still considering the implications of help from Brussels. She added that Europe must recognise the sacrifices and reforms Spain is carrying out.

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No Limits [aucontrarian]

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (, 2009)

            The European Central Bank’s latest maneuvers jettison limits to the expansion of its balance sheet. The ECB’s manner of improvisation is reminiscent of Federal Reserve Chairman Ben S. Bernanke’s dismissal of legal restrictions in 2008, when Bernanke talked his way around the law before pliant, ignorant, and frightened politicians.
European Central Bank President Mario Draghi’s abandonment of monetary restrictions would be, in due time, an incitement to unlimited price inflation. This is also true for the United States. However, practical matters (discussed below) will restrict this central bankers’ nirvana. After watching how swiftly opposition to the ECB’s latest decrees melted away, Ben Bernanke may feel reassurance of his freedom to roam. However, he too can only go so far. Maybe he’ll be stoned to death.
So, buy gold, silver, and gold and silver stocks.
It was not just Alan Greenspan. Now, central bankers the world round draw greater devotion than Britney Spears (who, according to Forbes magazine’s 2012 rating, is the world’s sixth most powerful celebrity, demonstrating once again that no matter how egregiously these mystical abstractions behave, they can do no wrong). On September 6, 2012, “Mario Draghi’s press conference was covered as if it were a soccer match. We are told that all across Europe shop stalls and bistros had TVs showing his presentation,” reported Art Cashin at UBS. (Cashin’s Comments, September 7, 2012). Comparisons with the waning of the middle ages are apt.

What Makes Mario Draghi So Dangerous For Europe [theautomaticearth]

Eagle with fasces used on the war flag of the Repubblica Sociale Italiana. Image by Flanker

The plan to “save the euro through unlimited bond-buying” that ECB president Mario Draghi presented last week shows one thing above all, and with blinding clarity to boot – why nobody picks up on it is beyond me: it shows that Draghi is the least suitable person to present any such plan.

Any country that wants a bailout under Draghi’s terms, that is: any country that wants its bonds to be bought by the ECB, must relinquish a substantial part of its sovereignty. At the very least, such a country will no longer be in charge of its own economic policies.

And it doesn’t stop there: the countries that will need to pay for and/or guarantee the bond-buying will also be called on, just like the ones whose bonds are bought, to relinquish a substantial part of their sovereignty: the ECB wants much more control over the banking system across Europe. The drive is towards more centralized (i.e. Brussels, Frankfurt) control, leading to far stricter fiscal union and political union, which would take away much of the control eurozone countries presently have over their economies.

Ergo, Mario Draghi’s plan is not an economic one, it’s political all the way (sovereignty, don’t you know). And politics is not Draghi’s field, if only because he’s neither a politician nor elected. He should not be allowed to have any say whatsoever in it.

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ECB plan puts independence in question: senior Merkel MP [Reuters]

The European Central Bank’s plans to buy the debt of troubled euro zone states calls its independence into question and takes it to the limits of its mandate, a senior member of Chancellor Angela Merkel’s ruling conservatives said on Monday.

The plans for potentially unlimited purchases of bonds issued by countries that request a European bailout and fulfill strict domestic policy conditions has stirred anxiety in Germany over the growing costs of the nearly three-year-old debt crisis.

The German central bank chief, Jens Weidmann, opposed the ECB move and some conservatives share his view that the bond-buying plans violate a taboo on financing state deficits. They also fear it will erode the ECB’s independence from politicians.

But Merkel and the country’s finance minister Wolfgang Schaeuble have thrown their support behind ECB chief Mario Draghi’s plan to help euro zone states manage their debts.

“Because an ECB intervention (in the bond markets) hinges on politically determined programs, the bank’s independence is brought a little bit into question,” Volker Kauder, the Christian Democrats’ (CDU) parliamentary leader and a close ally of Merkel, told the Bild daily.

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The one thing nobody’s talking about… [Sovereignman]

One of the unequivocal laws of the universe is that governments tend to screw up everything they try to do. When life gives them lemonade, they make lemon laws. Even if grounded in good intentions, all they know how to do is blow other people’s money and pass destructive new regulations.

In fact, I can only think of two institutions on this planet that have a more dismal long-term track record than government. The first is whoever ends up playing the Harlem Globetrotters. The other is central banks.

Presumably, the role of a central bank is to manage a nation’s money supply in order to smooth out booms and busts, and maintain a sound currency. But one need only look as far as the European Central Bank’s short 14-year history to get a sense of this massive failure.

800px ECB balance sheet1 The one thing nobodys talking about...

The single currency is now being crushed by Himalayan mountains of debt. The ECB’s solution? Conjure hundreds of billions of euros out of thin air to buy this debt, from which they’ll most likely take a huge loss. In doing so, they enable the most indebted eurozone nations to go even deeper into debt, more conveniently, at lower interest rates.

This is like dousing yourself with gasoline before running into a burning nursing home so that you can deliver a noose to a terminal, comatose patient. It’s genius!

Yet in comparison to the ECB’s remarkable stupidity, one must truly stand in awe of the US Federal Reserve. No other organization in the history of the modern world has been such a serial failure at fulfilling its missions of (1) maximum employment and (2) stable prices.

Since the Fed’s creation nearly a century ago, the dollar has lost over 95% of its value, and the US has experienced an almost uninterrupted period of asset bubbles, market crashes, bailouts, bank runs, recessions, depressions, and other financial panics.

Unsurprisingly, there is a growing movement to End the Fed. This is a great idea, and it would be a moral victory. But the Fed is only one pathogen in a much larger monetary disease. I’ll explain–

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ECB Preview: Sterilized Bond Buying? [Acting Man]

The Latest Rumors 

Euro area credit markets were calm ahead of the ECB meeting, as new conjectures regarding the plans to be announced were reported in the financial press.

One curious aspect to this is that the rumor of the day on Wednesday was that the ECB is considering ‘unlimited, but sterilized bond buying’ without setting any yield targets as was previously suspected.

Just in case readers are wondering where all these rumors are coming from, journalists are not just making them up: rather they get tidbits of information from their inside sources that tell them about the state of the discussion as it happens. In other words, all the possibilities that were subject to rumors over recent weeks were probably debated internally by the ECB’s various poobahs and minions. We suspect that these are at times leaked intentionally, in order to gauge the reaction of the markets and the public.

The latest rumor was relayed by Bloomberg on Wednesday:


„European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said.

Under the blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people said.

The euro jumped half a cent on the report and traded at $1.2611 at 5:40 p.m. In Frankfurt. European stocks advanced. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet.

Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency. Policy makers are deliberating on the plan today and Draghi will announce whether it has been agreed to at a press conference tomorrow.”




(emphasis added)


There certainly are quite a few people out there who are rightly worried about the inflationary effects of whatever action will be announced. However, the financial markets probably want monetary inflation. After all, sterilized intervention has already been tried with the SMP and has not even managed to fulfill the goals the planners themselves had set for the program – the program simply failed to suppress the targeted bond yields.

We should point out here that we believe all of these activities are futile and certain to produce negative long term consequences, we are merely trying to look at this from the point of view of the interventionists and what they aim to achieve.


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QEurope [angrybearblog]

I am generally skeptical about the importance of further QE in the USA, but I am definitely not skeptical about the effectiveness of the the leaked European Central Bank plan to purchase unlimited amounts of European Government debt.  The reason is that there are government bonds over here which terrify investors.  That means that the amount which private investors must hold should have a fairly large effect on the price (different European government bonds are not at all close substitutes).

The leaked plan is a compromise between the sane and the German (two of my best friends are German) .  Importantly the ECB will not place an upper limit on yields on bonds, that is promise to buy any amount if the price falls below some level.

The purchased bonds must be fairly short term bonds (the aim seems to be to make the intervention as ineffective as possible).  Jana Randow and Jeff Black  at Bloomberg report that up to three year bonds will be bought.  Again this is based on leaks.  Alarmingly Il Corriere della Sera reports both this claim and the dramatically contrasting claim (from a source identified only as “German speaking”) that the bonds will be of duration only up to 1 year.  That would be almost pointless.    I can’t get the corriere link (I read the article in the dead tree version and search ilcorriere is horrible).  The key passage is “Draghi ha citato l’esempio di titoli circolante sul mercato secondario con scadenze ‘fino a tre anni’ secondo alcune fonti, o ‘al di sotto di un anno’, secondo altre che parlano Tedesco.” that is “Draghi gave an example of bonds on the secondary market with maturity “up to three years” according to some source, or ‘less than one year” according to other sources who speak German.”

In comparison QE II consisted of purchases of 7 year notes and Twist of (sterilized) purchases of 30 year bonds.  My view is that QEII was totally pointless (didn’t even statisticall significantly affect the price of 7 year bonds) and Twist was at least better than QEII.  So 3 years is not long enough.  On the other hand, Spanish, Italian, Irish, Portoguese and especially Greek (PIIGS) bonds are not at all like US Treasuries.  They are not close substitutes for money at alllll (I personally will absolutely not exchange any of my money for any such bond with maturity over 3 months).

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EU Parliament Risks ECB Spat Over Draghi Briefing Leaks [Bloomberg]

European Union lawmakers risked a breach of confidence with the European Central Bankafter revealing details from a confidential briefing with ECB President Mario Draghi.

Members of the EU assembly’s economic and monetary affairs committee were chastised yesterday by the group’s chairwoman, Sharon Bowles, over the disclosures, which occurred shortly after the briefing with Draghi at the European Parliament in Brussels. Draghi was taking part in a hearing organized by the committee on the future of the euro and plans to build a so- called banking union.


The leaks were “a complete breach of confidence,” Bowles told lawmakers at a later, public, part of the session. “I think it has brought this house into disrepute.”

The euro rose against the dollar following comments from Jean-Paul Gauzes, a French member of the panel, that Draghi had told the lawmakers that he ECB president was comfortable with the central bank buying bonds with maturities up to about three years.

The euro jumped a quarter of a cent to $1.2611 and traded at $1.2595 at 10:40 p.m. in Brussels, up 0.1 percent on the day.


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Everything you need to know about the September 12 German court decision that could rock the entire world [Yahoo]

The eurozone is running out of bailout cash, and the German Constitutional Court now holds the fate of Europe in its hands.

The European Financial Stability Facility, the original euro area bailout fund established in the summer of 2010, is down to about €248 billion of lending capacity left after existing bailouts for Greece, Portugal, and Ireland are accounted for.

Spain and Italy – the next two countries expected to be in line for a bailout – could have combined financing needs as large as €703bn over the next two years, according to Citi estimates, dwarfing the existing capacity of the EFSF.

Those huge numbers underscore the need for the additional firepower of the European Stability Mechanism, the new bailout fund expected to replace the EFSF and make available hundreds of billions of euros in additional lending capacity to struggling member states.

However, the ESM has still yet to be ratified, which has many counting chickens before the eggs have hatched, so to speak.

The 16 judges that sit on the Federal Constitutional Court of Germany need to sign off on the fund’s constitutionality in order to make the fund operational – and the Court is widely expected to do just that when they deliver a ruling on ESM ratification on September 12.


President of the German Constitutional Court Andreas Vosskuhle (4th R) reads the verdict on the German government's European Stability Mechanism and the Euro Plus Pact in Karlsruhe June 19, 2012 file photo. REUTERS/Alex Domanski/Files


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Central Banks Digging a Deeper Hole [Financial Sense]

Dear readers, first of all, apologies seem in order. An unusual gap between blog posts has appeared on the Schlichter Files this summer. The reason is that I was travelling with my family in East Africa through most of August, enjoying the spectacular landscapes and the fascinating wildlife there, and meeting some very interesting people. Although, admittedly, I travelled in considerable comfort, and East Africa offers today reasonably good internet connections, often even in fairly remote areas, I decided not to read any newspapers, websites or even my emails for a few weeks, and instead tried to take my mind off the depressing subject of monetary meltdown and the destruction of capitalism and the free society at the hands of politicians and central bankers. So here I am, back in London after almost a month in the relative wilderness, slowly and reluctantly catching up with events in the strange world of 21st century finance. My first impression is that I have not missed much in terms of the unfolding crisis. None of the dynamics have changed. If anything, I feel my dire predictions and gloomy outlook again confirmed by recent events.

Where we are

Last month we entered the sixth year of this crisis, although parts of the media seem determined to continue calling it a ‘recovery’. Wishful thinking. We have been in continuous crisis for half a decade. Doses of Valium and Prozac – called QE among central bankers – have calmed nerves occasionally and given the false impression of healing.

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Draghi’s Master Plan Matrix [Zerohedge]

Following the dismal failure of Draghi’s OpEd this morning (which we assume was a reprint of his much-anticipated – and now cancelled – speech from J-Hole) to jawbone anything but a very brief pop in EURUSD, we thought it useful to aggregate all the great-and-good deeds the ECB elder is considering (and why). Europe remains in a long-term deleveraging phase (as much of the developed world finds itself). This lack-of-demand for credit has crushed the so-called ‘money-multiplier in Europe, just as it did in the US (which we discussed in detail here as worse than the Depression); as banks have simply stockpiled the vast sums of LTRO/ECB-collateralized funds. This has left him feeling less than his normal omnipotent self and so he is forced to act even more extremely (or talk about acting that way). The following matrix from Morgan Stanley outlines his policy options under various scenarios as we note few (aside from a rate cut) are actionable in the short-term, and even fewer are likely to make any difference to this long-term deleveraging-cycle.


Via Morgan Stanley – European Loans & Deposits Tracker

While we may have avoided a broad credit crunch, the ‘Great Deleveraging’ in Europe seems far from over; history suggests that European banks have a long way to go and the LTRO will slow but not stop the process. European banks will continue to de-globalise, in our view. We think that European banks could deleverage by €1.5-2.5tr over the next 18 months, but history suggests that, over a longer timeframe – say, 5-6 years – this could reach €4.5tr assuming zero deposit growth.


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ECB bond-buying ‘risks becoming addictive’ [The Telegraph]

Euro sign is illuminated in front of European Central Bank's headquarter in Frankfurt


The chief executive of the Bundesbank has warned that the European Central Bank’s plan for a new programme to buy government bonds of crisis-hit eurozone nations risks becoming addictive.

Jens Weidmann told Germany’s Der Spiegel magazine that a bond-buying policy is “close to state financing via the printing press”.

“In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks,” he added.

“We should not underestimate the risk that central bank financing can become addictive like a drug,” Mr Weidmann warned.

The ECB is being forced to take a greater role in fighting the eurozone crisis while the bloc’s governments negotiate legal and political hurdels to co-ordinating a longer-term rsponse.


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ECB Considers Interest Rate Caps; Can Such a Scheme Possibly Work? [Mish]

Economic Times reports European Central Bank mulls caps on borrowing costs

 The European Central Bank is considering buying the bonds of crisis-wracked eurozone countries to ensure borrowing costs do not rise beyond a pre-determined level, German newsweekly Der Spiegel said Sunday.

The bank will define an upper limit for borrowing costs in countries such as Spain and Italy and intervene in the markets to ensure it is not breached, Spiegel said, without citing its sources.

At the end of trade on Friday, Spain was paying 6.39 per cent to borrow for 10 years and Italy 5.76 per cent. In contrast, Germany was paying 1.49 per cent, as investors trust Europe’s top economy to repay them.

The so-called spread, or difference, between benchmark German bonds and the debt-wracked countries would be decisive for the proposed rate cap, Spiegel said.

ECB President Mario Draghi announced earlier in August that his institution “may” buy bonds of struggling countries if they first apply for EU bailout funds and accept tough conditions in return.

He said the details would be worked out before the next meeting of the ECB, scheduled for September 6. Spiegel said that ECB governors would decide then whether to implement the proposed borrowing cost cap.

Read more at’s+Global+Economic+Trend+Analysis)&utm_content=Google+Reader#LcksAkYWeeqTvFZZ.99


Why has work almost stopped on the new ECB Frankfurt headquarters? [The Slog]

A new two-fingered skyscraper is rising up from the Frankfurt horizon. Already delayed and running over the initial €500 million cost, these new Towers of Babel have become infamous for Occupy protests – and associated eurotaxpayer demands to know why the m word will probably be a b word  in terms of costs by the time roughly 2,500 employees are housed in the new building, which is scheduled for completion in 2014.

Ten days ago, The Slog received this email  from a well-placed observer in Frankfurt (extract):

‘Is it possible for you to ask the Bankfurt mole to confirm or deny that there’s a work stoppage at the new ECB building inFrankfurt/Osthafen since c. mid July? Maybe they’re analysing whether they need it in the future. Or they already know that they don’t.’

As it happens, the Bankfurt Mole contacts me, not the other way round: he is a bloke largely on Transmit, and I rather suspect he’d be insulted to be asked such a question. Predictably, I’ve put it to him – and since then the phone hasn’t started ringing. But a further question to the architectural observer above elicited this:

‘A guy who comes along the construction site fairly frequently is wondering why there are almost no construction vehicles for the past few weeks. He also says the face of the building shows no progress for the past few weeks.’

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Goldman’s investor survey of ECB’s decision [SoberLook]

Hopefully our friends at Goldman don’t get too upset, but a portion of their recent survey is just too important not to post. The survey asked what investors (as well as analysts and economists) think will be the ECB announcement/policy change tomorrow. Here are the results. As a comparison to Barclays Capital internal assessment (and further discussion) see this earlier post.

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Debt crisis: What could the ECB do to save the euro? [Telegraph]

The attention of world markets will be firmly fixed on the European Central Bank on Thursday, as it announces its monthly policy decision.

The declaration last week by President Mario Draghi that he will do “whatever it takes” to save the euro whipped markets into a frenzy. Investors took it as a signal that the ECB was poised to announce dramatic intervention to stem the eurozone crisis before policymakers take a summer break.

With expectations so high however, anything short of major action is likely to disappoint markets and trigger fresh panic. Here is a look at some of the possible options open to the Bank.

Banking licence

The ECB could grant a banking licence for the region’s permanent bailout fund, the European Stability Mechanism. This would allow the ESM to borrow from the central bank and take on a “lender of last resort” role for those sovereigns in difficulty but essentially solvent, like Spain and Italy. It would be a hugely significant move and likely have the most dramatic impact. Italy’s Prime Minister Mario Monti said yesterday such a move “will in due course occur”, but strong opposition from German policymakers makes it unlikely today.

Debt crisis: What could the ECB do to save the euro?


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The European Union investigating Draghi on alleged conflict of interest [ElPais]

Translation by Google


The internal monitoring body of the European Union has launched an investigation into the European Central Bank chief Mario Draghi, because of a conflict of interest claim, said Monday the spokesman of the institution. The Corporate Europe Observatory (CEO, for its acronym in English), a governmental institution that tracks lobbyists (lobbis) in the European Union, accused in June Draghi lack of independence as a member of an international forum Financial leaders of public and private sectors, the so-called Group of Thirty (G30).

“We received a complaint and sent a letter to the ECB,” confirmed Gundi Gadesmann, spokesman for the office of the European Ombudsman to the European Union, Nikiforos Diamandouros, which is collaborating with the CEO in this case. “We are now waiting for an answer,” he said before explaining that the ECB has until October to respond.

A spokeswoman for the ECB confirmed that the bank had received notice of the ombudsman’s office and said he would respond in due time. The spokesman, however, rejected the allegations that there was a conflict of interest.

The Corporate Europe Observatory has argued that participation in the G30 Draghi violates the ethical rules of the central bank. “Draghi is assumed that maintains close ties with the group and participating in closed meetings,” he said last month the group Transparency.

The G30 “has all the characteristics of a vehicle to lobby for international private banks and the European Central Bank president should not be able to be a member because of concerns about the independence of the bank,” it said.

Under the leadership of former ECB President Jean-Claude Trichet, the G30 brings together influential regulators, financial executives and academics. Former Federal Reserve Chairman Paul Volcker, the Bank of Canada Governor Mark Carney and the Bank of England governor Mervyn King are also members.

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