ECB intervention: when is it going to get serious?

later12

These comments today by Hollande as reported by Reuters agency

High borrowing costs for some European countries compared with Germany's may justify market intervention by the European Central Bank, French President Francois Hollande said on Thursday.

"The ECB's mandate include price stability and monetary policy. When you see such wide gaps in yields, that could be a justification for an intervention in the name of monetary policy," Hollande told a news conference after meeting with Spanish Prime Minister Mariano Rajoy in Madrid.

Hollande is quite correct to say that trouble on the sovereign market can have implications for price stability. It is a defence that has been repeatedly cited by the ECB that desirable sovereign bond values are necessary for the functioning of the monetary transmission mechanism. In the same breath it defends its LTRO operations knowing that they are indirectly acting as Lender of Last Resort to the Eurozone periphery.

It's also not unthinkable - some say it is extremely likely - that the ECB will end up lending to the IMF via the NCBs; the IMF will then on-lend to the troubled European sovereigns.

Is it not just time we stopped messing about with what will ultimately turn into ineffective Secondary Market Purchases by the ECB & got on with what is already happening in a deliberately roundabout way, which is the ECB acting as a Lender of Last Resort. Is it not about time that the political leaders of the Eurozone establish a Treaty change which will allow the ECB to act as the Lender of Last Resort directly?

After much debate, we have agreed the fiscal rules which are intended to harness discipline within our bloc. Now is a good time to ensure that the thus far weak political leadership of the bloc stop messing about with the sort of behaviour that Hollande and Draghi are talking about , and start to get serious about facing up to preserving the Eurozone via the ECB.

Lantus

The problem isn't any one lending institution. It's the entire monetary system whic is at fault. It was never really envisaged with the level of expansion, corruption and inequality we have forced it into today. All money in circulation today is debt created by banks.

In 1971 the worlds currency in circulation was about $0.2 trillion. In 2009 it was $4 trillion!

Where did this money come from???????

The common answer is growth. What does this mean? That companies actually printed their own money? No, only banks can 'create' money. Do the banks create the money and then give it away for free for the benefit of mankind? No, they lend it out, and add interest (money which hasn't yet been created, the perfect scam.) to either countries, people or business.

World debt levels have followed all the circulation and growth curves very closley because all that money IS debt.

If we were to pay off all country and personal and business debt there would be virtually no money in existence in the world. It would all simply cancel out.

We are rapidly aproaching a point where the lunacy of our monetary system will quite possibly destroy the society we know today. It is driving us towards a cliff and yet we cling onto it because we have been indocrinated to never question its existence.

padser12345

Sure thing, the money is just digits on a screen. It's not physical money as we know it.

later12

Lantus wrote: »

The problem isn't any one lending institution. It's the entire monetary system whic is at fault.

So say a lot of pretty amusing conspiracy theorists, exaggerated conservatives and other individuals of questionable mental stability, especially through the medium of youtube quite interestingly, but no. I don't quite agree that you can blame fiat money or an international conspiracy on the emergence of the European sovereign and banking crisis.

The question here is the development and reform of the ECB to make it an effective monetary institution capable of facilitating an end to our crisis.

padser12345

later12 wrote: »

So say a lot of pretty amusing conspiracy theorists, exaggerated conservatives and other individuals of questionable mental stability, especially through the medium of youtube quite interestingly, but no. I don't quite agree that you can blame fiat money or an international conspiracy on the emergence of the European sovereign and banking crisis.

The question here is the development and reform of the ECB to make it an effective monetary institution capable of facilitating an end to our crisis.

Yeah but the question remains....how did the ECB like so many other 'fine' institutions across our Nations "Fail"......you can't have prudent banking systems in place over hundreds of years and then 'just leave the gate open' for all and sundry!

You can quote Glass/Steagall to the the man on the street....till the cows come home - but it won't make any sense to him as to why there is less Bread on the table!

Therefore' for those of us who are curious or compelled enough to question the system....and subsequently come up with no answers - theorise & speculate as to "Why" and for "Who".....and I would suspect many "Conspiracy" theories prevail....valid or otherwise.

The ECB only has to merely 'adjust' to a crisis. Development & reform maybe too strong a phrase.

Sand

Lantus wrote: »

The problem isn't any one lending institution. It's the entire monetary system whic is at fault. It was never really envisaged with the level of expansion, corruption and inequality we have forced it into today. All money in circulation today is debt created by banks.

In 1971 the worlds currency in circulation was about $0.2 trillion. In 2009 it was $4 trillion!

Where did this money come from???????

The common answer is growth. What does this mean? That companies actually printed their own money? No, only banks can 'create' money. Do the banks create the money and then give it away for free for the benefit of mankind? No, they lend it out, and add interest (money which hasn't yet been created, the perfect scam.) to either countries, people or business.

World debt levels have followed all the circulation and growth curves very closley because all that money IS debt.

If we were to pay off all country and personal and business debt there would be virtually no money in existence in the world. It would all simply cancel out.

We are rapidly aproaching a point where the lunacy of our monetary system will quite possibly destroy the society we know today. It is driving us towards a cliff and yet we cling onto it because we have been indocrinated to never question its existence.

Maybe money isn't wealth. Maybe money is simply a means of exchange - a token by which the receiver is confident he can get something he is "owed" in return (debt....). Maybe money is more required when transactions and trade increase. If there is only 20 tokens circulating in an economy of 100 people transactions are constrained. Maybe economy's grow not just in the size of the population, but in the demands of those same people expanding and changing.

Maybe wealth is actual assets and productivity. Maybe you *need* debt to fund future wealth on an efficient basis.

In summary, yes, money=debt. So what?

When I hold money I am owed whatever I get for it. That's how a money system works, regardless of that money being paper or gold bars.

padser12345

Notional wealth V's Notion's of wealth....Maybe!!

charlemont

later12 wrote: »

So say a lot of pretty amusing conspiracy theorists, exaggerated conservatives and other individuals of questionable mental stability, especially through the medium of youtube quite interestingly, but no. I don't quite agree that you can blame fiat money or an international conspiracy on the emergence of the European sovereign and banking crisis.

The question here is the development and reform of the ECB to make it an effective monetary institution capable of facilitating an end to our crisis.

Yes. Excuse the poster for not being a Yes Man.

padser12345

Is it not just time we stopped messing about with what will ultimately turn into ineffective Secondary Market Purchases by the ECB & got on with what is already happening in a deliberately roundabout way, which is the ECB acting as a Lender of Last Resort. Is it not about time that the political leaders of the Eurozone establish a Treaty change which will allow the ECB to act as the Lender of Last Resort directly?

Have no doubt' that this will happen....but the contention there after will be - what rate of interest will be charged? Something today - maybe nothing tomorrow! And then what in effect do you have.....that's right a transfer union!

And what's another name for a transfer union?.........

later12

I would operate caution in likening direct sovereign debt purchases by the ECB as a transfer union. A transfer union implies the regular 'gifting' of structured or periodic payments from one jurisdiction to another. That's not what's being suggested here. While sovereigns do benefit in terms of funding, the instruments remain their own liability, not necessarily that of their rich neighbours.

You don't need a transfer union to allow the ECB to act as LOLR. You just need fiscal discipline regulations in place and the LOLR to retain an apolitical independence.

padser12345

Hi later12 -

Quote:
"I would operate caution in likening direct sovereign debt purchases by the ECB as a transfer union."

The ECB is being co-funded by the Bundesbank (the Bundesbank are not compelled to do so - but for what greater good I'm not sure). Both together buy sovereign debt from respective periphery Central banks. Is this not in 'effect' transfer union?
This only started after private credit stopped flowing throughout Europe.


Therefore - If you legitimise the ECB as a lender of last resort - you legitimise the notion of it being a transfer union.

Quote:
"A transfer union implies the regular 'gifting' of structured or periodic payments from one jurisdiction to another."

That's it's 'literal' meaning.....a form' which I believe may happen.

Your contention that the ECB is buying "ineffective Secondary Market Purchases" Why do you think they are doing this?

"Europe already has a central bank ‘transfer union’, but it is just under threat."

Mongfinder General

It gets serious when the ECB eventually starts printing money...

later12

padser12345 wrote: »

The ECB is being co-funded by the Bundesbank (the Bundesbank are not compelled to do so - but for what greater good I'm not sure). Both together buy sovereign debt from respective periphery Central banks. Is this not in 'effect' transfer union?

No. There is no inevitability of the ECB losing out on anything, in fact one might argue that the ECB can manipulate the secondary market to cause a win-win situation both for itself and for the sovereign in question. There are some potential difficulties with pursuing SMP policy over a long period of time, but ultimately it does not really amount to what could credibly be called a Transfer Union, no.

Mongfinder General wrote: »

It gets serious when the ECB eventually starts printing money...

No, it gets serious when a Government start printing money. An independent ECB "printing money" as it is popularly called is not quite as abominable.

rumour

Lantus wrote: »

If we were to pay off all country and personal and business debt there would be virtually no money in existence in the world. It would all simply cancel out.

We are rapidly aproaching a point where the lunacy of our monetary system will quite possibly destroy the society we know today. It is driving us towards a cliff and yet we cling onto it because we have been indocrinated to never question its existence.

Excellent post. One point however we simply can never pay off all the money because interest charges(creation of new money/debt) are always ahead of the debtor.

beeftotheheels

later12 wrote: »

Is it not just time we stopped messing about with what will ultimately turn into ineffective Secondary Market Purchases by the ECB & got on with what is already happening in a deliberately roundabout way, which is the ECB acting as a Lender of Last Resort. Is it not about time that the political leaders of the Eurozone establish a Treaty change which will allow the ECB to act as the Lender of Last Resort directly?

To paraphrase Mr Churchill it is not time to do the right thing until we have exhausted all other possibilities.

The German domestic economy is starting to see the knock on effect of the eurozone crisis, but to the average German their current almost/ negative interest rates are a reflection of their sound [morality/] economics rather than anything else.

Until they realise that their interest rates are artificially depressed by perceived conversion rates being the flip side of Italian and Spanish yields no German Chancellor can agree to remove Arts 123 and 125, certainly not a German Chancellor facing into an election in the coming 12 months.

Until the actual impact on the German economy of not saving the euro is understood by Fritz public, they can't agree to do all that is necessary to save it.

So in the interim Mario makes the best of a bad lot, safe in the knowledge that he can defend current bond market purchases as removing conversion premia which is clearly within his mandate, rather than as monetary financing and we all hope Angela can convince Jens to keep his toys in the pram just a little longer.

Ideally the Karlsruhe Court shows the cop on (that they've rarely shown) to defer a decision on the ESM case until after the CJEU hears the Irish Art 267 reference, and the CJEU finally gets to get involved as the one institution who can actually provide a game changer prior to the Governments' exhausting all other possible options.