THE TRILLION EURO MAN
Those brought up on 1970’s American TV series, will all remember Lee Majors, the Six Million Dollar man. Now introducing “Super” Mario Draghi, the 21st Century’s inflation adjusted Trillion
The ECB has recently provided a program of loans LTRO, to insolvent European Banks, which they can use to purchase European Sovereign Debt. This is of course “totally different” from the ECB buying Sovereign debt directly, which would not be allowed. Having successfully outmaneuvered Mrs. Merkel who is no doubt fuming in the Chancellery and pumped EUR 489 Billion into the banking system one has to wonder what Draghi will do for an encore?.
The EUR 489 Billion LTRO initial program was not enough to entice the banks to buy Sovereign Bonds as they preferred to keep the cash for themselves. The only solution is to up the ante and latest rumors from Credit Suisse is that the ECB is likely end February to do a further LTRO for a mind boggling EUR 1,000, Billion, increasing the ECB balance sheet from EUR 2, 100 Billion to EUR 3,800 Billon in about 6 months, this time even surpassing the annual GDP of mighty Germany.
This also towers above the achievements of Helicopter Ben Bernanke in money creation, with the Fed’s puny balance sheet of worthless debt, guaranteed by the
taxpayer, presently only a measly USD 2,400 Billion. US
We are beginning to see Mr Draghi’s true colors, namely saying one thing and finding a convenient almost legal way to do virtually the opposite, without people noticing. He has a great future as a Central Banker, provided his wife does not start currency trading as a hobby.
When the objective of the
capital requirements, logically would lead to Bank deleveraging, Banks are now having unlimited funds stuffed in their hands and being encouraged to do expand their balance sheets. Basel
This massive debt creation would of course further weaken the EUR currency. Some would say this cannot happen. Mr Hildebr…..er … sorry,
at the SNB is ready to print all the CHF necessary to buy all the EUR the world does not want, and maintain the EUR/CHF Peg at 1.20. Good luck with that. Jordan
Equally sinister is that with immense pressure to buy Sovereign bonds, which self respecting insolvent bank is going to lend money to the private sector, which actually produces wealth and needs finance to do so, and incur the wrath of the ECB, their lender of last resort? In addition who could resist borrowing at 1% for 3 years and getting multiples of that as yield on “risk free” Sovereign debt?
Joking and SNB (synonymous) apart, this will be a game changer in the undeclared currency wars between the USD and the EUR. We could well see a response, coordinated or otherwise, from the FED, as a too strong USD in an election year is bad for jobs and re-election prospects of incumbent Presidents.
Germany the weak EUR is very good for exports, to its bankrupt neighbors and elsewhere, but Mrs. Merkel has to decide soon if Germany can accept the Stealth QE which will ultimately consume the EUR or whether should exit the Euro Zone. The German people at 65% have made it very clear they want this to stop, but who listens to popular opinion these days. Germany
The person who will force the decision is Mario Draghi, the real leader of
Europe today, who is relentlessly pursuing the Agenda of the international financial elites, who put him in his present job. They are completely indifferent to whether the consequences are reducing the German population, whose greatest crime since the end of World War II has been to work hard, and bail out their East German cousins, to multi-generational debt serfdom.